Manufacturing activity improves but remains in contraction mode

Taipei, May 2 (CNA) Taiwan's manufacturing activity showed signs of improving in April due to a recovery in new orders and production, but an index gauging conditions in the sector still showed a contraction, the Chung-Hua Institution for Economic Research (CIER) said Thursday.

Data compiled by CIER, one of the leading think tanks in Taiwan, showed the purchasing managers' index (PMI) rose 1.5 points from a month earlier to 49.4 in April, a new high since February 2023, when it stood at 51.4.

The PMI is a measure of the direction of economic trends in manufacturing.

April was the 14th consecutive month of the manufacturing sector being in contraction mode.

In the service sector, the non-manufacturing index (NMI) rose 0.6 from a month earlier to 54.1, marking the 18th consecutive month of expansion.

PMI and NMI readings above 50 indicate expansion, while those below 50 represent contraction.

PMI sub-index

The five major factors in the April PMI all moved higher with the new orders sub-index rising 3.2 from a month earlier to 50.1 in April and the production sub-index rising 2.8, also to 50.1, CIER said.

The employment sub-index moved higher by 0.4 from a month earlier to 49.3 in April, while the supplier deliveries index was up 0.9 to 50.3 and the inventories index rose 0.2 to 47.1.

This means the supplier deliveries index also returned to expansion, the data showed.

In addition, the raw material prices sub-index rose sharply by 5.8 from a month earlier to 64.1, the highest level since May 2022, when it hit 69.3, according to the data.

Speaking with reporters, CIER President Yeh Chun-hsien (葉俊顯) said the higher new orders sub-index reflected an increase in rush orders or short-term orders in the electronics and optoelectronics industry and basic raw material industry.

However, manufacturers in the transportation tool industry were faced with escalating competition and had an increasingly cautious business outlook.

In April, the business outlook sub-index fell 1.2 from a month earlier to 55.2 but remained in expansion mode for the third straight month.

Still, Yeh said the local economy seemed to be moving forward effortlessly.

AI boost

Echoing Yeh, economist Kamhon Kan (簡錦漢) from Academia Sinica said although the April PMI remained in contraction mode, it showed signs of nearing expansion, as the local manufacturing sector received a boost from the growing development of artificial intelligence.

Kan said the manufacturing sector appears to be at the dawn of recovery.

However, Kan cautioned that geopolitical unease and inflation in the United States and Taiwan are expected to create uncertainty in the recovery of the local economy.

By industries, the food and textile industry and the electrical equipment and machinery industry sub-indexes moved higher from a month earlier with both staying in expansion mode, CIER said.

However, the chemical and biotech industry, the electronics and optoelectronics industry, and basic materials, industry sub-indexes moved lower from a month earlier.

The transportation tool industry sub-index remained flat in April and continued contracting, according to CIER.

Service sector

As for the NMI, the business activity sub-index moved higher by 3.3 from a month earlier to 56.7 in April, while the new orders sub-index moved lower by 0.2 to 54.2 and the supplier deliveries sub-index moved lower by 0.8 to 52.0. All remained in expansion mode.

The employment sub-index remained unchanged from a month earlier at 53.6 and in expansion mode.

In April, the business outlook in the service sector sub-index fell 4.2 from a month earlier to 54.9. It has been in expansion mode for six months in a row.

CIER said the decline largely reflected a plunge of 774 points on the Taiex, the weighted index on the Taiwan Stock Exchange, on April 19 and a surprise rate hike by the central bank in March.