Output up, private sector off to good start

Despite the stock market gloom, the year has started on the right foot for the private sector, with overall business and operating conditions improving last month.

The Nikkei purchasing managers' index (PMI), a proxy for business activity, inched up from 52.1 in December to 52.5 last month. A reading of above 50 signals expansion.

Output continued to rise at a robust pace, despite the growth rate being the slowest in three months.

However, an official PMI representing only factory activity, out early this week, indicated a seventh straight month of contraction in the manufacturing industry, with a reading of 49.0 for last month, from December's 49.5 reading.

The Nikkei Singapore PMI is derived from a survey by Nikkei and Markit Economics.

Data is compiled from monthly questionnaires sent to executives in more than 400 private sector firms that represent the structure of Singapore's economy, including manufacturing, services, construction and retail.

The report said last month's reading "signalled a further improvement in the health of Singapore's private sector", adding that the latest improvement was the strongest seen since February last year.

The report found that firms surveyed were raising output to meet greater client demand and more new orders, but noted that overall new work had only a slight increase at the start of this year.

Data also showed that "sluggish domestic demand dampened growth in total new business", as new export work rose at the fastest pace since the survey began in August 2012.

Economist Annabel Fiddes at Markit added: "The PMI sub-indices suggest that domestic demand remains relatively weak, as total new work increased only slightly despite a record increase in new export work."

She said the data also suggested that firms were generally optimistic about the business outlook, and reasons include increasing purchasing activity and slightly expanding payrolls last month.

"Nonetheless, it's likely that stronger domestic demand will be required to sustain the robust pace of output expansion seen in recent months, while uncertain global economic conditions also pose a downside risk to growth," said Ms Fiddes.

rachaelb@sph.com.sg

This article was first published on February 4, 2016.
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