The Vietnam Manufacturing Purchasing Managers' Index (PMI) posted 51.8 in October, down marginally from 52.2 in September, but still signaling an improvement in the health of the sector as business conditions have now strengthened in two successive months, according to Nikkei and IHS Markit.

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

Improving operating conditions were noted in the consumer and intermediate goods sectors. On the other hand, investment goods firms posted a deterioration, amid further falls in both output and new orders.

Anecdotal evidence suggested that success in bringing the Covid-19 outbreak under control in Vietnam had helped lead to a recovery in customer demand.

As a result, new orders increased solidly for the second month running, subsequently feeding through to a similarly-paced increase in production to that seen for new business.

Meanwhile, new export orders were unchanged amid some demand weakness in markets where the virus continues to cause problems, notably in Europe.

Greater output requirements encouraged manufacturers to take on extra staff in October. Employment increased for the first time since January, though at only a marginal pace amid ongoing signs of spare capacity. 

Higher output requirements also led to a second successive monthly increase in purchasing activity, although stocks of purchases decreased as inputs were used to support output growth. 

The Covid-19 pandemic continued to cause issues in supply chains during October. Suppliers' delivery times lengthened to a greater extent than in September. Alongside the direct impacts of the pandemic, shortages of materials and poor weather conditions reportedly contributed to delivery delays.

Material shortages led to accelerating cost inflation, with input prices increasing at the fastest pace since August 2018. The passing on of higher input costs to customers resulted in a second consecutive rise in selling prices. 

Firms were generally confident that output will increase over the coming year amid optimism that the virus will remain under control. 

“The Vietnamese manufacturing sector started the final quarter of the year on a solid footing, according to the latest PMI data. This should continue as long as Covid-19 remains under control in the country,” said Andrew Harker, Economics Director at IHS Markit, which compiles the survey. "The most pleasing aspect of the latest survey was a return to growth of employment for the first time since before the pandemic hit as workloads start to justify rising staffing levels.”

"A positive end to the year could set the economy up nicely for a strong recovery to kick in during 2021," he concluded.