The HSBC South Korea Purchasing Managers’ Index posted 55.6 in January, improving solidly from December’s 52.8. This signaled a marked strengthening of business conditions within the South Korean manufacturing sector.
January data signaled a marked acceleration in new order growth since December. Moreover, the rate at which incoming new business increased was the fastest in 25 months. Overall growth in new orders was supported by improved demand, both domestically and from abroad, and reflected the ongoing recovery in global economic conditions.
The marked rise in new order volumes necessitated a further increase in output, which expanded at its fastest pace since December 2007. However, production remained insufficient to meet the higher volume of new business, highlighted by a robust rise in backlogs at South Korean manufacturers.
Similarly, finished goods stocks were depleted again, as panelists reported that they had utilized stocks in order to partially fulfill order obligations.
Reflective of the marked increase in output, purchasing activity rose at its sharpest rate in two years. This impacted upon suppliers’ delivery times, as vendor operating capacity was insufficient to deal with the rise in the quantity of purchases. However, the extent to which lead times lengthened was marginal, indicative of competition between suppliers. Higher levels of input buying also led to a rise in stocks of purchases.
As pressure on production capacity continued, South Korean manufacturers increased employment for an 11th consecutive month. However, the rate at which staffing levels grew eased marginally since December.
Rising raw material prices continued to push input costs higher in January. Input cost inflation was at its strongest in 11 months and drove an increase in output prices. The index measuring charges posted above the 50.0 no-change level for only the fifth time in nearly six years of data collection.
Commenting on the South Korea Manufacturing PMI survey, Frederic Neumann, senior Asian economist at HSBC, said: “South Korea's economy accelerated into January, with the output component of the PMI pointing to strong sequential growth in the first quarter. Rising new orders, as well as lean inventories, should ensure robust output growth in the coming months. Price pressures, however, are building fast, especially on the input side, which may warrant the start of gradual monetary tightening in the coming months.”
