Vietnam’s manufacturing indicator saw a slight month-on-month increase, but the manufacturing sector also faced a further worsening of operating conditions in September, according to a recent report.

The increase in the HSBC Vietnam Manufacturing Purchasing Managers’ Index (PMI) was highlighted by a slight rise in the headline index from 47.9 in August to a five-month high of 49.2 in September, according to the latest report.

Readings above 50.0 signal an improvement in business conditions from the previous month, while readings below 50.0 show deterioration.

September’s data also showed that manufacturing output was little changed since the month before, following a solid reduction in July.

However, the seasonally adjusted Output Index has risen almost nine points since July. The stagnant output picture reflected lower levels of new business, said the report.

Meanwhile, new orders decreased again in September, with panelists largely attributing this to subdued market demand conditions. But the rate of decline in new orders was the weakest in the 5-month sequence.

In contrast, the pace of reduction in new export business accelerated against August. Although only modest, the latest decrease in foreign orders was the sharpest recorded by the series starting in April this year.

The size of the Vietnamese manufacturing sector workforce was little changed in September.

Meanwhile, backlogs of work declined at a sharp rate, the steepest in the short series history. The latest decrease in outstanding business extended the current period of reduction to six months.

Purchasing activity continued to fall in September.

The rate of decline in input buying was slight, however, having eased markedly for a second successive month.

Stocks of purchases fell as a result, although the rate of decline was the slowest since November 2011.

Meanwhile, companies continued to report shorter lead times from vendors, largely reflective of sufficient stock of inputs at suppliers.

Cost pressures

Average input costs faced by goods producers rose for a second successive month in September, with the rate of inflation accelerating to a five-month high.

The overwhelming reason given by panelists for a rise in average prices was that raw material costs had increased over the month. Some survey respondents also mentioned higher prices paid for fuel.

Despite the rise in average costs, goods producers reduced their output charges during September in an attempt to attract new business. The rate of output price discounting was only slight, however.

“The stabilization of manufacturing activity in Vietnam is a positive development, especially given the downturn of the global trade cycle and the still-fragile domestic business environment,” said Trinh Nguyen, Asia Economist at HSBC.

“New export orders continue to contract but, at close to 50.0, the print for the Output Index is in line with our view that growth will pick up in the fourth quarter.”

“With inflation picking up significantly, as indicated by the rise in input prices, the SBV will hold rates steady for the rest of the year,” Nguyen added.