Manufacturing sector moves deeper into contraction: S&P Global

The decline signaled a further deterioration in business conditions in the manufacturing sector.

The latest retreat was the most marked since the pandemic-related downturn experienced in the third quarter of 2021, S&P Global said in its press release Tuesday.

New orders were down solidly in December, falling for the second month running and to a greater extent than in November.

Generally weak demand conditions were highlighted, with a number of key export markets mentioned as sources of weakness. These included mainland China, the EU and the United States, with this weakness leading to a second successive reduction in new export orders.

Manufacturers responded to the lower number of new orders by scaling back production, also for the second month running, according to the American corporation.

Moreover, the rate of contraction was sharp and the most pronounced since September 2021, with the drop in output outpacing that seen for new orders. As a result, backlogs of work ticked higher, ending a four-month sequence of depletion.

With production requirements falling amid lower new orders, firms reduced their staffing levels accordingly. Employment decreased at a marked pace, and one that was the sharpest in 14 months.

Andrew Harker, Economics Director at S&P Global Market Intelligence, said: "The Vietnamese manufacturing sector continued to struggle in December, in part due to subdued demand conditions in the key export markets of mainland China, the EU and the U.S. Securing new work is likely to remain difficult until there is a pick-up in these markets, with a number of firms indicating that they expect demand to remain subdued in the near-term at least."

Manufacturers have responded quickly to the downturn in new orders, with the latest PMI data showing sharper reductions in output, employment and purchasing activity, as well as price cuts to try and stimulate demand, he said.

S&P Global Market Intelligence is predicting a rise of 6.8% in industrial production for 2023, which would represent a slowdown from 2022.