Manufacturing falls sharply due to drop in new orders, jobs, supplies

KUALA LUMPUR, Sept 1 — Malaysia’s manufacturing sector experienced a sharp drop in output last month, reversing the earlier effects of a slowed decline in the first six months of the year.

According to the latest Nikkei Purchasing Managers Index (PMI) released today, all areas of manufacturing — from new orders to employment and suppliers’ delivery times as well as stock purchases — suffered a faster pace of decline in August compared to July.

The headline Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) for August was at 47.4, down from 48.1 in July which was its highest reading since March.

“Latest survey data for the Malaysia manufacturing sector signalled a sharper deterioration in operating conditions. This was underpinned by quicker declines in output, new orders and employment with the rate of job shedding the fastest in over three years,” Amy Brownbill, an economist at London-based market information and analysis firm IHS Markit, which compiles the survey, said of the latest Malaysian PMI survey results.

“Meanwhile, cost inflationary pressures intensified, with input prices increasing at the joint-second fastest rate in the series history. This was linked by the survey panel to higher raw material costs stemming from unfavourable rates and the rise in the sales tax,” she added in a statement accompanying the PMI report.

The Nikkei report stated that output at local plants last month dropped for the 17th consecutive month, adding that a number of manufacturers surveyed cited fewer new orders for the production fall.

Lowered demand was also cited as the main reason for a cut in recruitment, which it said was at the fastest pace since April 2013.

The Nikkei report said manufacturers were less optimistic towards hiring new staff last month to save on cost.

As part of cost-saving measures, manufacturers were also cutting back on buying raw materials due to the weakened ringgit in the exchange rate and higher sales tax, the report said.

“In fact, cost inflation accelerated to the joint-second highest in the series history. As a result, manufacturers rose their charges at a stronger rate,” the Nikkei PMI report said.

The ringgit continued to trade at over 4 to the US dollar this morning.

The manufacturing slowdown has weighed on Malaysia's economic growth, which has fallen to its lowest level in six years.

The first quarter GDP growth limped home at 4.2 per cent compared to 4.5 per cent in the previous quarter.