Vietnam’s PMI rises sharply in June on new order growth

Sharpest increase in new business since March 2011

The report outlined that, not only does data signal a third consecutive monthly improvement in the health of the sector, but it also indicates that business conditions have strengthened markedly.

In fact, the improvement recorded in operating conditions was the joint-strongest since November 2018, equal with those seen in April 2021 and May 2022. The much greater strengthening of conditions reflects substantial increases in both output and new orders at the mid-point of the year. In particular, new orders rose to an extent only exceeded during the opening month of data collection for the survey in March 2011.

An improvement in demand was also reported, with some customers coming back to request additional orders during the month. In some cases, competitive pricing had helped firms to secure new business.

Elsewhere, fresh export orders increased at the fastest pace since February 2022, albeit at a speed that was still much softer than that of total new businesses. The acceleration recorded in the growth of new orders was matched by manufacturing production, with June seeing the steepest increase in output for just over five-and-a-half years.

Employment returns to growth

The strength seen in the rise of new orders has put additional pressure on operating capacity, with backlogs of work increasing for the second time in three months. Although slight, the pace of accumulation was the sharpest seen since January. In some cases, firms indicated that staff shortages had led to the build-up of outstanding business.

As a result, workforce numbers were raised for the first time in three months at a solid pace. In some cases, new hires were only made on a temporary basis. Enterprises also sought to expand their purchasing activity, with input buying increasing for the third month running and at the fastest pace since June 2022.

Despite this, stocks of purchases continued to fall amid the use of inputs to support production. Similarly, stocks of finished goods decreased as inventories were shipped to help meet sales needs. Moreover, the drop in post-production stocks was the largest recorded in three years.

Output prices rise at fastest pace in two years

The rate of input cost inflation accelerated for the third consecutive month in June and hit a two-year high. There were widespread reports of higher transportation costs, alongside increases taking place in oil prices and the cost of imported items. In turn, manufacturers also moved to raise their own selling prices to the largest degree since June 2022.

Charge inflation has now been recorded in two successive months. Better raw material availability helped suppliers to speed up deliveries in June and lead times shortened for the first time in 2024. The improvement made in vendor performance was only slight, however, amid international shipping issues. The prospect of favourable business conditions continuing has served to support confidence in the year-ahead outlook for manufacturing output. Indeed, positive sentiments has hit a three-month high as around half of respondents predicted an expansion.

Andrew Harker, economics director at S&P Global Market Intelligence, said, “The Vietnamese manufacturing sector burst into life at the midway point of the year, shrugging off the relatively modest growth seen in recent months thanks to a rapid increase in new orders. The strength of the expansion in new work highlighted staff shortages at some firms and resulted in an accumulation of outstanding business. In response, firms took on additional staff at a solid pace.”

“The growth spurt was accompanied by higher cost burdens, with increased transportation costs in particular acting to push input price inflation to a two-year high. Rising inflation could act to dampen demand further down the line, but for now firms will be enjoying the influx of work experienced in June,” he noted.