Vietnamese manufacturers registered further expansions in output and new orders midway through the third quarter, according to the latest report released by the S&P Global on September 4.

Although growth in each eased from the near records seen in July, rates of expansion remained strong nonetheless and prompted the most marked increase in purchasing activity in more than two years. Less positive was a first reduction in employment in three months, however.

Although both input costs and output prices continued to rise in August, reports of competitive pressures meant that the respective rates of inflation eased markedly over the month.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index™ (PMI®) posted 52.4 in August, down from 54.7 in July but still signaling a solid monthly improvement in business conditions midway through the third quarter, according to the report. Operating conditions have now strengthened in each of the past five months.

The improvement in the health of the sector reflected further rapid increases in output and new orders, with the respective rates of expansion remaining sharp despite easing from the particularly elevated rates seen in June and July.

Improvements in customer demand resulted in growth of new orders, with firms raising production accordingly. In some cases, relative stability of prices had helped firms to secure new business, while there were also mentions of improving international demand. New export orders rose for the fifth month running.

The relatively stable price situation was also signaled by data on input costs and selling prices. While both continued to increase, rates of inflation slowed markedly from July to the weakest in four months.

Some manufacturers reported higher raw material prices, but the rate of inflation slowed amid signs of competitive pressures. Meanwhile, lower oil prices acted to reduce transportation costs in some cases.

Strong growth of new orders and softer cost pressures led manufacturers to increase purchasing activity sharply during August. Moreover, the rate of growth quickened for the fourth month running to the fastest since May 2022.

Purchased inputs were often used directly to support production, meaning that stocks of purchases continued to fall. Stocks of finished goods were also down as inventories of completed products were delivered to customers to help satisfy order requirements. In contrast to the picture regarding purchasing activity, manufacturers recorded a drop in employment for the first time in three months amid resignations and the ending of some temporary contracts.

The drop in workforce numbers at a time of rising new business meant that backlogs of work continued to accumulate in August. Outstanding business increased for the third month running, with the rate of expansion unchanged since July.

Suppliers' delivery times shortened for the third month running, albeit only marginally amid some reports of international shipping delays.

Manufacturers remained optimistic that output will increase over the coming year, based on expectations of further improvements in customer demand and new orders. Sentiment dropped for the second month running, however, and was the lowest since January.

Andrew Harker, Economics Director at S&P Global Market Intelligence, said: “As expected, the Vietnamese manufacturing sector saw a slowdown in growth of output and new orders from the particularly elevated rates seen in June and July. Those increases were always going to be hard to sustain and rates of expansion remained marked, so there is little cause for concern on that front.

"One issue firms are facing is a drop in employment, which is making completing projects more difficult and adding to outstanding business. We will hopefully see a return to job creation in the coming months.

"The news was better in terms of inflation, with both input costs and output prices rising at much weaker rates in August. In fact, this was reportedly a factor contributing to sustained new order growth."

"Overall, the sector continues to enjoy a strong second half of the year so far, with plenty of work to get through in the months ahead," he further explained.