Manufacturing reports modest growth but trends are concerning

Việt Nam’s manufacturing sector continued to show improvement in November, with the Purchasing Managers’ Index (PMI) staying above the 50-point threshold for a second consecutive month of robust business activities.

Việt Nam’s manufacturing sector continued to show improvement in November, with the Purchasing Managers’ Index (PMI) staying above the 50-point threshold for a second consecutive month of robust business activities, a relatively quick recovery from Typhoon Yagi in September.

However, the sector’s PMI fell to 50.8 points in November, down from 51.2 points in October.

An S&P Global report, released on Monday, said Việt Nam’s manufacturing PMI highlighted three concerning trends: a slowdown in new order growth due to declining exports, a second consecutive month of job cuts and prolonged supplier delivery times.

The report said the sector experienced slower growth in November compared to the previous month, with modest gains in output and new orders. The latter was mainly due to weaker export performance by the Southeast Asian economy.

Meanwhile, firms continued to reduce the labour force in a bid to cut costs, which contributed to an increase in backlogged work. Input costs increased only modestly, leading to a slight rise in output prices.

It said while the PMI remained above 50, pointing to a second month of improving conditions after September’s decline due to Typhoon Yagi, the lower PMI score of 50.8 compared to October's 51.2 showed only modest growth in the sector.

As some firms ramped up production to meet increased new orders, others reported relatively weak demand, resulting in slower output growth. Despite improvements in domestic demand and the acquisition of new customers, weaker global economy demand hampered overall growth.

New export orders have fallen, even after a brief increase during the previous month, with export activity declining. Output and new orders continued to rise, at a slower rate. Employment fell for the second month running in November.

In some instances, companies said they had been forced to reduce their labour force to manage costs. However, with fewer workers companies struggled to complete orders on time, leading to streaks of rising backlogs, said the report.

Efforts to keep costs low resulted in a slight increase in input price, below the year’s average so far as respondents claimed the main culprits were supply shortages and currency depreciation. Output price rose only modestly.

Manufacturers said they would likely face longer supplier delivery times during the remaining weeks of the final quarter. Delivery times continued to increase in November, for the third month in a row and with more delays compared to October, as respondents said transportation and raw materials were major challenges for suppliers.

Overall, the sector reduced its purchasing activity in November. Coupled with supply chain issues, inventories have been going down fast, including finished goods as companies must fulfil orders.

Business confidence fell for the second consecutive month, reaching its lowest level since January. On the other hand, manufacturers remained optimistic about prospects for 2025 with high expectations for new product launches, business expansion plans and rising numbers of new orders.

Economics Director at S&P Global Market Intelligence, Andrew Harker, said Việt Nam’s manufacturing sector experienced setbacks in November, namely slower growth in output and new orders, which could be attributed to a weaker global demand. He said however that as demand bounces back companies should find the confidence to invest in additional capacity.