12:12 | 03/06/2015 Industry
Manufacturing growth gathered pace in May, with rising client demand leading to record growth in output and new orders, HSBC Vietnam has said in a monthly report it released on June 1.
A welder works at the Ha Long Shipyard in Quang Ninh province (Photo: VNA)
The Purchasing Managers' Index report said the rate of job creation also picked up pace during the month.
Input costs increased for the first time in seven months, but firms continued to lower their output prices.
The headline, seasonally adjusted Purchasing Managers' Index (PMI), a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, rose for the second month running to 54.8 from 53.5 in April.
The marked improvement in operating conditions signalled by the latest reading was the strongest since the series began in April 2011.
Business conditions have now improved in each of the past 21 months.
Central to the marked strengthening of the sector's health was a record increase in new business. Respondents indicated that the rise mainly reflected a greater need for products among customers. New export orders also rose, albeit at a much weaker pace than for total new business.
As client demand increased, manufacturers raised production accordingly. As a result, output increased for the 20th month in a row and at the strongest pace in the series' history.
Firms were able to increase output partly as a result of a second successive month of job creation in May.
Employment rose solidly and at the sharpest pace since January. There was still evidence of pressure on capacity in the latest survey, however, as backlog of work accumulated for the first time in five months. Panellists largely attributed higher outstanding business to a sharp growth in new orders.
After having fallen in each of the previous six months, input costs for manufacturing firms rose. Higher oil and electricity prices, as well as a weakening of the dong against the US dollar, were mentioned by respondents as the reasons for the increase.
But that said, the rate of inflation was relatively modest and firms continued to lower their prices amid competitive pressures. Prices have now decreased in each of the past eight months.
Rising production requirements led manufacturers to increase their buying of inputs.
Purchasing activity expanded sharply and at the fastest pace in the series history. This contributed to a second successive monthly accumulation of stocks of purchases, with the expansion also the fastest recorded in over four years of data collection so far.
Suppliers' delivery times lengthened marginally as panellists mentioned limited stock holdings by vendors. This was despite some reports that quick payments had led to faster deliveries. Delays in the dispatch of products to clients contributed to an accumulation of stocks of finished goods in May, while strong output growth was also cited as a factor leading to increased post-production inventories.
Andrew Harker, senior economist at Markit, which coordinates with the bank for the survey, said, "The Vietnamese manufacturing sector gained further momentum in May and growth rates are now the best we have seen in the four years of data collection so far.
"Central to the recent success of firms in Vietnam has been their ability to secure new work in a competitive environment, and the recent 1 percent devaluation of the dong against the US dollar by the State Bank of Vietnam should help efforts to maintain international competitiveness.
"On the other hand, some firms did report a rise in costs as a result of the weaker currency, leading to a first rise in input prices in seven months./."