Taiwan: PMI contracts further to three-year low in November as demand weakens
Operating conditions in the Taiwanese manufacturing sector deteriorated for the second consecutive month in November, as demand conditions continued to weaken. The manufacturing Purchasing Managers’ Index (PMI), reported by Nikkei and IHS Markit, declined from 48.7 in October to 48.4 in November. The index thus remained below the 50-point threshold that separates expansion from contraction in the manufacturing sector. It had fallen under the threshold for the first time in October, ending an over two-year expansion streak.
Though the decline in November was modest, it nevertheless marked the worst deterioration of operating conditions in just over three years. This was largely due to lower demand, as reflected by a third consecutive month of decline in new orders—which fell at the fastest pace since September 2015—and a fall in new export business as well. Consequently, firms also reduced production in the month, though at a slightly softer rate than the three-year low logged in October. Employment growth also remained very modest, while backlogs of work fell for the first time in over two years.
Looking at supply indicators, purchasing activity declined at the steepest rate in over three years, leading input inventories to fall for the first time since mid-2017. Meanwhile, stocks of finished products were flat in November, after accumulating for 13 consecutive months. Despite easing demand pull on manufacturers’ supply chains, supplier delivery times continued to lengthen amid reports of input stock shortages. On the other hand, lower demand caused price pressures to moderate significantly: input cost inflation slowed to a 16-month low, while selling prices only increased marginally, also at the slowest pace in 17 months.
Despite an overall decline in demand, firms became optimistic again regarding the outlook for the year ahead—though only modestly so—after briefly dipping into pessimism in October. Commenting on the outlook, Annabel Fiddes, principal economist at IHS Markit, noted that:
“As firms cut their buying activity and inventories and maintained a cautious approach to staff hiring, the data suggests that the sector is unlikely to see an improvement unless we see an upturn in demand and new order inflows.”