MANUFACTURING activity expanded in May in the Association of Southeast Asian Nations (ASEAN), driven by expansions in output and new orders, according to the Nikkei ASEAN Manufacturing Purchasing Managers’ Index (PMI) prepared by IHS Markit.

According to the report, ASEAN headline PMI increased to 50.6 in May from 50.4 in April, “signalling only a slight improvement in the health of the manufacturing sector.”

A reading above 50 signals a contraction in purchasing, considered a leaing indicator for future manufacturing activity and potentially economic growth. A reading below 50 signals a contraction.

The report said the May reading is the highest since August 2018.

The report covers seven of the 10 ASEAN members. The manufacturing PMI consists of five sub-indices, with new orders having the heaviest weight at 30%, followed by output at 25%, employment at 20%, suppliers’ delivery times at 15% and stocks of purchases at 10%.

An IHS Markit report released earlier gave a PMI reading for the Philippines at 51.2, from 50.9 in April, showing a “modest but stronger improvement in the health of the manufacturing sector.”

According to the ASEAN report, Myanmar had the top PMI reading in the region of 54.2. PMI readings for Vietnam were at 52; Indonesia, 51.6; Thailand, 50.7; and Malaysia, 48.8. There is no available PMI data yet for Singapore, but the report said it likely recorded a downturn, along with Malaysia.

“ASEAN manufacturing firms saw an established recovery of business conditions in May, building on the progress made after the downturn at the start of the year. Output grew more strongly as firms enjoyed the quickest increase in sales for nine months. Specifically, the PMI signaled an improved picture for the region’s export market which remained broadly stable following an eight-month sequence of decline,” David Owen, IHS Markit economist, was quoted in the report.

According to the report, stronger demand drove the growth for the month, which supported the fastest expansion of production in six months. Also, firms raised their inventories of inputs for the first time since September 2016, the report said, but noted that this performance was marginal.

Input prices rose at a quicker pace, with all seven countries reporting increase in manufacturing costs for the first time in seven months, due to firmer demand which led suppliers to raise prices, the report said, while unfavorable exchange rates and higher fuel costs were also factors.

The report said business sentiment about output 12 months in advance improved in May, with sentiment at its highest in two and a half years, with five of the seven countries expressing a more positive outlook.

“…given the impact of the US-China trade war last year, businesses will be downbeat on news of tariff increases in May. Export demand from China may be damaged once more, possibly leading to another period of declines in foreign sales. Luckily, domestic markets are holding up, offering hope of continued strength in new factory orders,” Mr. Owen said. — Reicelene Joy N. Ignacio