Manufacturing sentiment in Singapore was in the green in August, making this its second month of expansion.

Data released by the Singapore Institute of Purchasing and Materials Management (SPIMM) on September 3 shows the republic’s Purchasing Manager’s Index (PMI) came in at 50.1 points.

Albeit a 0.1-point dip from July’s 50.2 points, the metric remained in expansionary territory thanks to an improvement in new orders and stronger factory output growth.

A lift also came from the electronics PMI which reversed from a six-month contraction to touch a two-year high of 50.6 points. This follows a pickup in new orders, exports and factory output, SPIMM details.

Selena Ling, head of treasury research and strategy at OCBC Bank adds “there is still growth across wafer fab equipment, assembly and packaging equipment, and semiconductor test equipment, led by regional demand in China, Taiwan and Korea, as well as 5G demand”

The PMI Index is a key barometer indicating a nation’s manufacturing activity. A reading above 50 indicates an expansion in output, while that below 50 points to an industry shrinkage.

To United Overseas Bank (UOB) economist Barnabas Gan, the recent results “reflects a relatively rosier economic backdrop, compared to the contraction period between February and June, when the indices were below the 50.0 mark”

“The August PMI readings pointed to a silver lining in the electronics sector, which appeared to provide a needed boost for the overall manufacturing sector to remain on the expansion track,” says Sophia Poh, SPIMM’s vice president of industry engagement and development.

Poh believes that “pro-business measures initiated by the Singapore government” such as financing grants, tax reliefs and wage subsidies have been effective in tiding manufacturers through the trying times that rose from health measures adopted to curb Covid-19 infections.

A separate PMI reading by marketing consultancy IHS Markit shows a slide in output levels to 43.6, from the 45.6 points registered in July.

The consultancy attributes this to the 13.2% contraction in Singapore’s 2Q2020 GDP which followed a slump in both services (-13.4% year-on-year) and construction (-59.3% year-on-year), clocking their deepest contraction on record since public data was made available in 1976.

Referencing the readings by SPIMM and IHS Markit, Gan notes that a sustained weak global demand landscape persists. 

“Singapore’s “construction and business services were severely affected by ongoing measures to contain the spread of COVID-19,” he observes. 

“Firms remained in retrenchment mode, with employment falling sharply again amid a renewed development of spare capacity,” he adds.

Gan and his OCBC counterpart Ling’s concerns on the labour market for manufacturing stems from a drop in the overall manufacturing employment PMI reading to 48.6 – making this the metric’s seventh month of contraction.

This is a cause for concern, given that the sector has 472,000 employees as at mind-2020.

"Hiring sentiments continued to stay soft, underlining a potentially weak labour market outlook in the months ahead," says Gan who expects Singapore’s unemployment level to hit 3.5% in 2020, with possible upside risks.

In contrast, the unemployment rate stood at 2.3% in 2019.

Among the segments in the manufacturing cluster, Ling cautions that biomedical manufacturing may be under the weather as "the July Industrial production data had already shown a second month of pullback”.

Industrial production was down 8.4% year-on-year in July, while the decline narrowed to 5.2% when the biomedical cluster was excluded. The sector plunged 24.8% following a decline in the output of biological products and a different mix of active pharmaceuticals ingredients.