S&P Global reported that this reduction signals a renewed deterioration in terms of business conditions at the end of the third quarter of the year following a spell of solid growth.
The index was down to 47.3 from 52.4 in August, with this pointing to the most marked worsening in the health of the sector since November last year. Indeed, typhoon Yagi caused a marked reduction in manufacturing production in September, thereby ending a five-month sequence of expansion.
Marked falls in output and new orders
After output increased sharply in August, the renewed decline in the latest survey period represented the most pronounced since January, 2023.
A similarly-sized drop in new orders was also recorded, again linked to the impact of the storm. New export orders dipped, although the rate of contraction was only marginal and much weaker than that seen for total new business as international demand held up relatively well.
With output coupled with new orders down, firms moved to scale back their purchasing activities for the first time in six months. Those manufacturers that did make purchases again during the month were faced with a marked lengthening of suppliers' delivery times as flooding disrupted transportation. As a result, stocks of purchases decreased rapidly.
Near-record reduction in stocks of inputs
The reduction can be viewed as the second steepest in history, only just behind the pandemic-affected month of April, 2020. Along with this, stocks of finished goods were also down in September.
Disruption to production lines coupled with company closures due to the storm meant that backlogs of work continued to accumulate, with the latest rise in outstanding business being the sharpest in two-and-a-half years. With the disruption caused by typhoon Yagi expected to be only temporary, manufacturers remain optimistic that output will increase over the coming year.
Staffing levels increase slightly
In fact, sentiment ticked up to a three-month high, with firms confident that demand will strengthen. Positive expectations coupled with marked rises in new orders in previous months led manufacturers to expand their staffing levels slightly in September, following a fall during the previous month.
Employment has increased in three of the past four months. Although input costs increased amid higher raw material prices and rising transportation costs, the rate of inflation ticked lower and remained relatively modest. A similar picture could be seen with regards to selling prices. Indeed, some firms increased charges in response to higher input costs, but others took advantage of muted cost inflation in order to offer discounts to their customers.
Andrew Harker, economics director at S&P Global Market Intelligence, said “The severity of Typhoon Yagi had a major impact on the Vietnamese manufacturing sector as heavy rain and flooding caused temporary business closures and delays to both supply chains and production lines. The storm brought an end to a period of strong growth in the sector.”
"The underlying demand picture should remain conducive to growth, however, meaning that we could see a quick rebound in the sector as the recovery from the storm begins. As such, firms remained optimistic in the year-ahead outlook and increased employment even as workloads fell,” he noted.
