Growth was sustained in the Vietnamese manufacturing sector during May, while new orders increased solidly again, prompting a faster expansion of production, the latest report from the S&P Global Market Intelligence suggested.

The S&P Global Vietnam Manufacturing Purchasing Managers' Index (PMI) was unchanged at 50.3 in May, signaling a second consecutive marginal monthly improvement in business conditions in the sector.

“The latest data was something of a mixed bag. On the positive side of the ledger, new orders were up solidly again amid signs that demand growth is being sustained, prompting a sharper increase in production in May. On the other hand, there are concerns around staffing levels and inflationary pressures,” said Andrew Harker, Economics Director at S&P Global Market Intelligence.

Meanwhile, cost inflation was the fastest in close to two years, feeding through to higher output prices.

“Overall, companies are optimistic regarding the future, with success in securing new business hopefully acting to overcome the headwinds being felt elsewhere," he said.

The health of the sector has fluctuated only fractionally through the opening five months of 2024. New orders increased solidly again in May as a strengthening demand environment helped firms secure new customers and bring in new business. The rate of expansion was slightly softer than that seen in April, however.

Meanwhile, new export orders also increased, albeit to a lesser extent than total new business. The expansion of total new business encouraged manufacturers to raise their production volumes for the second month in a row. Moreover, the rate of growth quickened to the fastest since September 2022.

Electronics production at Hoa Lac Hi-tech Park. Photo: Pham Hung/The Hanoi Times

Despite the increases in new orders and output, manufacturers recorded a second successive monthly fall in employment midway through the second quarter. Anecdotal evidence suggested that employee resignations and extended absences had been behind the drop in workforce numbers, which was solid and the most pronounced for almost a year.

Although staffing levels dropped, firms managed to handle workloads in May and even decreased outstanding business, following a slight increase in the previous survey period.

While employment continued to fall, another expansion of purchasing activity was registered in May as firms responded to rising output requirements. The increase was the second in as many months, and more marked than in April.

When companies purchased inputs during the month, they were faced with a sharp increase in prices. In fact, the rate of inflation quickened markedly and was the fastest since June 2022.

A number of respondents indicated that currency weakness had added to material prices, while there were some reports of higher oil and fuel costs. Around one-quarter of respondents signaled an increase in input costs, against 5% that posted a decrease. The sharp rise in input costs fed through to an increase in selling prices, the first in three months.

The pace of charge inflation was the joint-steepest in 15 months, on par with that seen in October 2023. After having been unchanged in April, suppliers' delivery times lengthened marginally in May. Panelists linked delivery delays to goods shortages and difficulties caused by geopolitical issues. Meanwhile, stocks of both purchases and finished goods continued to fall, with current sequences of depletion extended to nine and five months respectively.

Factory expansion plans, the launch of new products, and the prospect of continued growth of new business all supported confidence in the year-ahead outlook for production.