Vietnam manufacturing accelerates in August as output, orders surge

Renewed jobs cuts and cooling export demand clouded an otherwise buoyant August reading.

Vietnam's manufacturing sector accelerated further in August, with output and new orders both climbing at their fastest pace in more than two years, even as firms continued to trim their workforces.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index rose to 53.3 in August from 52.9 in July, marking a fourteenth straight month above the 50.0 threshold that separates growth from contraction. The improvement in business conditions was the most pronounced since February.

Survey respondents linked the upturn to a range of factors, including new product launches, better availability of materials and softening price pressures — all of which fed through into sharp rises in both new orders and production. Output rose for a sixteenth consecutive month, at the quickest rate in just over two years, whilst new orders expanded at their sharpest pace since October.

The gains came despite a renewed, albeit marginal, dip in new export orders, which manufacturers attributed to ongoing geopolitical instability abroad — the first such fall in four months.

Employment told a less encouraging story. Staffing levels fell for the fifth time in six months, with firms reporting resignations, retirements and a scaling-back of temporary labour, even as backlogs of work rose for a second consecutive month amid the surge in new orders.

Manufacturers stepped up purchasing activity to meet higher output requirements, though the pace of growth eased to a three-month low. Stocks of purchases and finished goods both fell as firms drew down inventories to meet demand, whilst suppliers' delivery times lengthened only marginally — the joint-slowest deterioration in vendor performance in two years.

On costs, price pressures eased across the board. Input cost inflation slowed to an eleven-month low, running slightly below its long-run average, while output price inflation softened for a fourth straight month. Higher oil prices continued to push up costs for fuel, plastics and shipping, but the overall trend was one of moderation.

Business confidence remained positive but ticked down slightly from July, staying well below levels seen before the outbreak of the Middle East conflict, even as new products and improved capacity supported expectations of further output growth over the coming year.

Andrew Harker, Economics Director at S&P Global Market Intelligence, said the Vietnamese manufacturing sector had gathered pace through the middle of the third quarter, with output and new order growth not only returning to but exceeding the robust rates seen earlier in the year, as easing price and supply pressures allowed firms to win new business and fulfil orders through higher production volumes.