Taiwan’s manufacturing activity stayed in contraction mode for the seventh consecutive month in January following a fall in new orders and production during the prolonged Lunar New Year holiday, the Chung-Hua Institution for Economic Research (CIER) said on Friday.

Data compiled by CIER, one of Taiwan’s leading economic think tanks, showed the January Purchasing Managers’ Index (PMI), which gauges the conditions of the local manufacturing sector, fell 3.3 points from a month earlier to 40.4, the lowest level since July 2012, when the institute first began publishing the index.

In terms of the service sector, the non-manufacturing index (NMI) also fell 3.2 points from a month earlier to 50.1 in January, but remained in expansion mode for the third straight month, CIER said.

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

Speaking at a news conference, Chen Hsin-hui (???), an economist with CIER, said the reduced number of working days in January due to the 10-day Lunar New Year holiday pushed down sharply the sub-indexes of new orders and production, two of the PMI’s five major factors.

The sub-indexes on new orders and production fell 5.4 and 10.6 points, respectively, from a month earlier to 34.4 and 32.1 in January, and the sub-index on employment also saw a decline of 2.8 points from a month earlier to 45.6 in January. All of the three stayed in contraction, CIER said.

Bucking the downturn, the sub-indexes on supplier deliveries and inventories rose 2.3 and 0.2, respectively, from a month earlier to 46.4 and 43.7 in January, but still remained in contraction, CIER added.

“It seemed to me that the local manufacturing sector sped up its pace to find the bottom before staging a rebound,” Chen said. “Judging from all of the factors in the January PMI, I think it will not be appropriate to stay downbeat about the sector.”

Echoing Chen, CIER President Yeh Chun-hsien (???) cited responses from some manufacturers as saying some of their clients’ inventories have stopped growing amid weakening global demand, while other clients have started to build up inventory, indicating a positive sign for the future.

A rebound in the sub-index on a business outlook over the next six months provided more evidence of a possible recovery in the local manufacturing sector, Yeh said.

According to CIER, the sub-index on business outlook rose sharply by 9.6 points from a month earlier to 38.9 in January, the largest increase in about 30 months. Yeh said it boded well that the manufacturing sector will bottom out in the near future.

In January, all the sub-indexes on the six major industries in the PMI — the chemical and biotech, electronics/optoelectronics, food and textiles, basic raw material, transportation equipment, and electric and machinery industries — moved lower from a month earlier, with all in contraction.

Chen said as inflation in the United States and Europe has been moderating and China has staged a better-than-expected economic rebound amid eased COVID-19 controls, uncertainty faced by exports-oriented manufacturers in Taiwan has been reduced to some extent. Chen added that she is looking forward to China’s stimulus measures, which may be released in the spring.

As for the NMI, CIER said, the sub-indexes on business activity, new orders and employment moved lower by 8.0, 7.3 and 1.1, respectively, from a month earlier to 47.9, 47.0 and 51.1 in January, but the employment stayed in expansion.

Meanwhile, supplier deliveries in the NMI performed well, with the sub-index rising 3.8 from a month earlier to 54.4 in expansion mode in January, CIER said.

While the sub-index on business outlook over the six months was 44.3 and remained in contraction for the 10th consecutive month, the figure rose significantly by 8.1 from a month earlier to 44.3 in January, the highest level in eight months, CIER added.

Yeh said the long Lunar New Year holiday boosted private consumption, and domestic demand-oriented industries in the service sector benefited from the higher spending.

However, CIER Vice President Wang Jiann-chyuan (???) said the local service sector is faced with growing inflation, and it will not be easy for inflation to ease quickly this year.

According to the Directorate General of Budget, Accounting and Statistics, the year-on-year growth of Taiwan’s consumer price index hit a six-month high of 3.04 percent in January, well above the 2 percent alert set by the central bank.

Source: Focus Taiwan News Channel