Vietnamese manufacturers recorded another monthly improvement in business conditions during May, with growth of output and new orders picking up from April.

The headline Nikkei Vietnam Manufacturing Purchasing Managers' index (PMI) posted 52.0 in May, down marginally from 52.5 in April but still representing an improvement in business conditions in the Vietnamese manufacturing sector, according to Nikkei and IHS Markit.

A reading below the 50 neutral mark indicates no change from the previous month, while a reading below 50 indicates contractions and above 50 points to an expansion.

The softer improvement in the health of the sector was recorded in spite of stronger increases in both output and new orders. 

The securing of new customers helped firms to register new order growth, with the rate of expansion the strongest in 2019 so far. New export orders also increased in May, and at a solid pace. 

Rises in new orders, both from domestic and overseas clients, were reportedly behind the latest increase in manufacturing output. Growth has now been registered on a monthly basis throughout the past year-and-a-half.

The investment goods sector was the best-performing broad manufacturing category in May, posting the fastest expansions of output, new orders and new export orders.

The moderation in the headline figure principally reflected a drop in employment – the third in the past four months. Staffing levels fell marginally, with panellists mainly linking this to employee resignations and retirements. 

Manufacturers increased their purchasing activity at a solid and accelerated pace in May as they responded to greater output requirements. The rise in input buying fed through to an accumulation of stocks of purchases, the second in as many months. Sufficient stock holdings at suppliers were also reported, helping lead to an improvement in delivery times. 

Meanwhile, stocks of finished goods decreased in May, thereby ending a seven-month sequence of accumulation. Where post-production inventories fell, this was linked to the use of stocks to meet new orders. 

Business confidence improved for the third month running to the highest since last November. Optimism regarding output growth reflected expected increases in new orders and new product launches.

“The demand side of the Vietnamese manufacturing sector remained rosy in May, with faster increases in output and new orders recorded. 

There appear to be issues around the supply of labor, however, with reports of resignations and retirements leading to reduced employment levels in spite of the aforementioned improvements in demand and output requirements.

This led the PMI to tick lower, a picture which could be reversed in coming months should the demand side remain strong and firms be able to replace departed workers,” said Andrew Harker, associate director at IHS Markit, which compiles the survey.