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Key S’pore economic indicator takes another dip

PMI now just above threshold between expansion and contraction

(SINGAPORE) The purchasing managers’ index (PMI) slid for a third straight month in February, with declines in export orders and output. But the electronics index edged up, even though orders were also weak.

With its latest 0.2-point drop, the PMI – a barometer of the manufacturing economy – is now down to 50.3, just above the 50-point threshold between expansion and contraction.

The electronics PMI, which had fallen in the preceding three months, surprisingly added 0.4-point to 51.2 – despite declines in key indicators such as new orders and output.

The overall PMI covers 12 manufacturing industries, including electronics.

The Singapore Institute of Purchasing & Materials Management (SIPMM) polls purchasing executives from some 150 companies every month to produce the index.

While a fall in the readings usually spells decline, February’s lower figures might also be due partly to the shorter month (rather than totally reflecting weaker demand) as the comparisons are with the preceding month, rather than year-on-year.

Still, past readings show that not every February PMI is down, and March – a much ‘bigger’ month – has also yielded lower readings.

Lau Geok Theng, associate professor at the National University of Singapore Business School and vice-chairman of the SIPMM council, reckons the slight dip in the February PMI reflects some uncertainty as markets react ‘suspiciously’ to official measures taken to keep the US economy from falling into recession.

These include the proposed US$145 billion economic stimulus package and the recent 0.75-point cut in US interest rates to 3.5 per cent.

There is also a ‘wait and see’ attitude as businesses deliberate over the outcome of the upcoming election in the United States and other countries such as Malaysia, as well as in Pakistan where elections were held last month, so as to assess long-term directions and plans, he said.

According to SIPMM executive director Janice Ong, citing anecdotal evidence, local manufacturers remained cautious last month but were still expecting a surge in demand.

The PMI readings show big increases in the raw material inventory sub-indices, but marked decreases in the finished goods figures. But the latter remains above 50 points, indicating an accumulation of unsold goods.

Source: Business Times 5 Mar 08

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