The headline HSBC Taiwan Manufacturing Purchasing Managers’ Index posted 57.4 in May, falling from April’s reading of 60.7. Nonetheless, the latest figure still indicated a marked improvement in business conditions within the Taiwanese manufacturing sector, which was the 14th in successive months.
Incoming new business received by manufacturers in Taiwan increased markedly during May. However, the rate of new order growth slowed notably since April, and was the weakest in 10 months. Panelists noted an overall easing in demand growth, and attributed this to a particularly large expansion in new orders received in the previous month. New business received from overseas markets also increased at a slower pace during May.
The overall rise in new orders supported a further increase in activity during May. Despite this, backlogs of work at Taiwanese manufacturers increased for the fourteenth successive month. Panelists reported that output was restricted by capacity, but also shortages of certain materials.
Finished goods stocks fell modestly during May. This reflected the completion of shipments to clients as well as initiatives to reduce inventories.
In line with a further increase in workloads, and sustained accumulation of backlogs, employment within the Taiwanese manufacturing sector rose. The rate at which staffing levels increased slowed marginally since April, but remained strong in the context of historical data.
May data signaled a further rise in purchasing activity. The increase in input buying slowed during May, reflecting the weaker expansion in output. Despite this, suppliers’ delivery times lengthened to a greater extent, as shortages of materials impacted on lead times. Manufacturers reported an increase in pre-production inventories during May, and commented that they were implementing initiatives to rebuild stocks.
Input costs faced by manufacturers in Taiwan increased sharply during the month, with the extent of the rise broadly unchanged since April. Rising raw material prices continued to drive input cost inflation. Output prices also increased, albeit to a lesser degree than that reported in April.
Commenting on the Taiwan Manufacturing PMI survey, Frederic Neumann, co-head of Asian economic research at HSBC, said: “After a red-hot start into the year, the Taiwanese economy is showing signs of cooling. Notably, the pace of new order growth, both total and foreign, has started to slow leading to a more cautious outlook among firms. So far, job creation is holding up, suggesting that domestic demand will remain stable over the coming quarters. But, the slowing global trade cycle will take the wind out of Taiwan's sails for a while, alleviating price pressures and leaving policy-makers more cautious about tightening.”
