KUALA LUMPUR (March 1): Malaysian manufacturers continued to tread a path towards recovery midway through the first quarter.
In a statement on Friday, S&P Global Market Intelligence said both new orders and production levels moderated at a marginal pace amid reports that there were some pockets of demand building.
It said at the same time, employment and backlogs broadly stabilised during February, as well as purchasing activity and average lead times.
Higher raw material prices and currency weakness, meanwhile, added to firms' input costs, with the pace of inflation quickening from the previous survey period.
That said, selling prices were raised only fractionally in response.
The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index was 49.5 in February, up from 49.0 in January, to signal a slight deterioration in business conditions that was the softest since the current sequence of decline that began in September 2022.
The historical relationship between the PMI and official data suggests that both gross domestic product and manufacturing production are set to trend upwards and improve modestly in the first quarter of 2024.
The latest survey data pointed to a further scaling back of manufacturing output, the nineteenth in as many months.
That said, the pace at which production eased was mild and the softest since August 2022.
Respondents largely attributed the latest output easing to weak demand conditions, though some firms mentioned that some areas of demand had showed signs of recovery.
This was consistent with softer moderations of total new orders and new export business.
Both reduced at a slight pace in February that were the softest in the respective 18- and ten-month sequences.
Weak demand had led to some reluctance among clients to commit to new projects, though other panel members noted a slight improvement in customer confidence.
As the moderation in demand softened, manufacturers noted that backlogs of work were broadly stable in February.
Where outstanding business fell, a number of survey respondents mentioned a lack of staffing capacity.
This was consistent with a further fractional decrease in employment levels as firms looked to cut operating costs.
That said, some manufacturers opted to take on additional full-time staff as pockets of demand appeared.
Softer reductions in production and demand allowed for a gradual stabilisation in purchasing activity as some companies mentioned increasing input buying to match output requirements.
Concurrently, Malaysian manufacturers opted to further run down inventories of purchases and finished goods.
Manufacturing firms noted a renewed lengthening in delivery times in February.
Where longer lead times were mentioned, they were often attributed to port congestion and the disruption to shipping in the Red Sea. That said, the deterioration was only fractional.
S&P Global Market Intelligence economist Usamah Bhatti said the latest S&P Global Malaysia Manufacturing PMI suggests that firms began to see demand conditions turn a corner during February.
“There were only slight moderations in output, total new orders and exports as firms mentioned pockets of demand building up in the manufacturing sector.
"Further encouragement came from a broad stabilisation in backlogs of work, a sign that capacity pressures were also starting to build.
“At the same time, employment levels were broadly unchanged, as efforts to reduce costs by lowering headcounts were offset by the hiring of new full-time staff.
"There were indications of a pick-up in cost inflation in February, but it was far removed from the pace recorded in the three years following the Covid-19 pandemic.
“In fact, firms raised their selling prices only slightly over the month, amid reports that some manufacturers reduced charges in an attempt to stimulate sales,” said Bhatti.