The Purchasing Managers’ Index (PMI) for Vietnam’s manufacturing sector dropped to 45.3 in May, compared to 46.7 in April, signaling the industry’s third consecutive month of business decline. This decline in manufacturing health is the most significant since September 2021. The latest data reveals that Vietnam’s manufacturing sector continues to struggle with weak demand. Production and new order volumes have declined significantly as companies reduce employment and corresponding purchasing activities. Business confidence has also decreased.
There is mounting evidence of decreasing price pressures in the manufacturing sector. For the first time in three years, input costs have decreased, allowing manufacturers to lower prices and stimulate demand.
Multiple reports indicate weak customer demand in the latest survey period. New order volumes have experienced a substantial decline, reaching the largest drop in 20 months. Difficulties in maintaining revenue have been observed in export markets, with new orders from overseas decreasing for the third consecutive month.
With the continuous decrease in new order volumes, companies have scaled back production in the second quarter of the year. Production has declined for three consecutive months, with the most significant and fastest decline recorded since January. All three manufacturing sub-sectors have experienced decreases, with intermediate goods production witnessing the sharpest decline.
The S&P Global report highlights that the persistently weak demand has adversely affected business confidence, reaching its lowest level since November 2022. Any remaining optimism is based on the hope that the manufacturing sector’s recovery will occur in the coming months.
Some companies have reduced their workforce due to decreased workload, resulting in a slight employment decrease in May, although the decline is less pronounced compared to the previous survey period.
Despite reducing operational capacity, companies have managed to address a significant backlog of work in May. Backlogs have decreased at the fastest rate since June 2021.
Companies have significantly curtailed purchasing activities, extending the current period of decline to three months. Consequently, purchased inventories have decreased, with the most substantial decline in nearly two years.
Finished goods inventories have also declined as companies adjust production activities in line with the reduction in new order volumes. This is the first decline in three months.
Reduced demand for input goods has eased supply chain pressures. As a result, the performance of sales personnel has improved for the fifth consecutive time, marking the most substantial improvement since February 2015.
Weaker demand has also led suppliers to reduce selling prices. Input costs have decreased for the first time in three years. The decrease in input prices has made it easier for companies to lower selling prices in an effort to stimulate demand. Selling prices have decreased for the second consecutive month, with a decline rate nearly matching the previous survey period.