Vietnam’s manufacturing sector seems to begin its recovery process with newly released Purchasing Managers’ Index (PMI) data.

The headline seasonally adjusted PMI in September rose back above the 50.0 no-change mark to a 5-month high of 51.5, an improvement over the PMI rate of 49.4 in August.

It was the best reading since April 2011 when the survey was available for the first time.

The survey for the PMI, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, was jointly conducted by Hong Kong-Shanghai Banking Corp and market research firm Markit for many countries globally.

Signals of recovery

September’s survey of Vietnamese manufacturers provided positive news on the health of the sector with new orders and employment both increasing at survey record rates. This, in turn, was a factor “driving the PMI higher in September”.

“Growth of new business was solid, reflective of an improvement in underlying demand from domestic and foreign clients. Better product quality and competitive pricing – the latest survey showed a sixth successive monthly decline in output charges – also helped to support sales growth.”

Given rising demand overseas, there was a marked gain in foreign sales.

New export business also rose at a series record pace. September was the first time in four months that an increase in new export sales had been registered.

Payrolls in Vietnam’s manufacturing sector continued to expand in September after being encouraged by higher sales, marking growth for the second successive month as companies sought to keep on top of their workloads.

On this front, backlogs of work continued to decline in September. Latest data marked the eighteenth consecutive month that work outstanding has been cut.

However, the degree to which backlogs were depleted was the slowest seen since April.

Stocks of finished goods rose slightly in September. Manufacturers were able to add to stocks, reduce backlogs and cope with a rise in new orders while maintaining a broadly stable level of output.

“The above 50.0 PMI reading is reflective of improved global demand for Vietnamese goods as well as a stabilization of domestic conditions,” said Trinh Nguyen, Asia Economist at HSBC.

The flip side

According to the survey, on the price front, input cost inflation was maintained in September.

Despite easing from a record high in August, the degree to which average costs rose was again marked and, with output charges falling in line with ongoing competitive pressures, profits margins continued to be squeezed.

Fuel, utility bills and raw materials were all reported to have risen in price in September. There were some reports of scarce supply.

This was further borne out by the latest data on suppliers’ delivery times, which showed deterioration in vendor performance for the first time in six months. There were reports of stock shortages at suppliers during September.

Demand for inputs was also higher in September. Purchasing activity among Vietnamese manufacturers increased for the first time since April in line with rising new orders and positive demand projections.

“While we expect output to pick up in H2 2013 thanks to an expected recovery in the Eurozone, China, the US and Japan, internal demand is still lackluster.

“While prices rose in Q3 2013, we expect inflationary pressures to remain contained,” said Trinh Nguyen.