Output for S’pore electronics and non-electronics diverge a second month
SINGAPORE – Factory output for electronics and non-electronics continue to diverge for a second month in June and may start to become a source for concern.
The purchasing managers’ index (PMI), a barometer of the manufacturing sector, dipped to 50.4 points in June, down from May’s 50.6 points, according to the latest data released by the Singapore Institute of Purchasing and Materials Management on July 2.
In contrast, the electronics PMI, a key sector of manufacturing, rose to 51.2 points, up from 51.1 from the previous month.
This divergence is also reflected in the underlying indexes for both the manufacturing and electronics PMIs.
On the one hand, the good news is that electronics has continued to do well, in spite of the weaker showing by the non-electronics manufacturers.
DBS economist Chua Han Teng said: “The performance of Singapore’s electronics cluster, which accounts for almost half of overall manufacturing production, will be key to the manufacturing recovery in 2024.”
He noted that the electronics PMI was also at its highest since September 2021 and felt that this should negate concerns regarding the modest pullback in the latest headline factory gauge.
Mr Chua was optimistic about the improving external demand for electronics, with an upturn in the global tech cycle likely to be underpinned by the replacement of smartphones and PCs, as well as from the increasing ubiquity of artificial intelligence (AI) applications.
On the other hand, economists told The Straits Times that the deviation by the broader manufacturing sector could be due to the challenges surrounding the rerouting of vessels and port congestion. In turn, this may have increased supply chain costs and slowed deliveries, they said.
OCBC chief economist Selena Ling noted: “Some segments within manufacturing could also be feeling the heat, such as pharmaceuticals that have not been performing well recently, according to the output data.”
Maybank Research’s senior economist, Dr Chua Hak Bin, said: “Such extended disruptions may eventually dampen the recovery of both manufacturing and electronics growth in the coming months.”
He said: “June’s slightly lower manufacturing PMI, while still above 50 points, suggests that the pace of expansion is moderating.”
Among the more concerning trends in the underlying data for both the main and electronics PMIs were the deceleration in stocks of finished goods and future business.
This was compounded by employment within the broader manufacturing PMI slipping into contractionary territory after falling for three consecutive months, while supplier deliveries for the electronics PMI – which were already in contraction – saw its downward trajectory steepen over that same period.
Meanwhile, persistent inflation pushed input prices higher, although the trend seemed less obvious, with fluctuating prices having hit a trough in May.
On a more optimistic note, Ms Ling felt that the recovery still had legs. “New orders, new export orders and order backlogs gauges for manufacturing still remain in expansion territory for now, so it’s not the end of the world.”
Echoing the sentiment, DBS’ Mr Chua noted that headline PMI for manufacturing and electronics remained in continuous expansion for a tenth and an eighth straight month, respectively.
“This is encouraging, signalling that factory recovery in 2024 remains intact,” he said.
Separately, Maybank’s Dr Chua felt that employment may not be that reliable an indicator in forecasting manufacturing growth.
“Technological improvements tend to improve productivity, which in turn, reduces manufacturers’ reliance on labour,” he noted.
Looking ahead, Ms Ling said: “There are certain risks that bear watching, such as the United States elections and geopolitical developments that could have implications for global trade and growth.”
Nevertheless, she still expects gradual improvements in electronics for the latter half and for manufacturing to see modest positive growth for 2024.