2 Oct 2000

Electronics new orders slow over oil crisis The slowdown in Sept PMI reflects 'lots of cautiousness and uncertainty'

By Eugene Low

[SINGAPORE] New order intakes in the electronics sector grew at a slower pace last month because of uncertainties over oil prices, resulting in a lower purchasing managers' index (PMI) for September.

The PMI -- an indicator of the manufacturing sector's performance -- fell two points to 56.4. While a reading above 50 indicates the manufacturing economy is still expanding, experts say there are signs that growth might be moderating.

Said Alick Chia, head of the Singapore Institute of Purchasing & Materials Management's (SIPMM) business survey committee which produces the index: "The trend is not so positive, reflecting lots of cautiousness and uncertainty. In fact, the negative sentiment is more pronounced in the electronics sector."

The electronics sector, which accounts for over 40 per cent of Singapore's total manufacturing output, experienced a reduction in the growth of new orders from domestic and overseas markets. The electronics PMI declined a sharper 5.9 points to 58.2 last month.

"Anecdotal evidence suggests that several companies are adopting a cautious stance in their expansion strategies, due to the uncertainties surrounding oil prices, as well as the relatively weaker euro," said Philip Poh, chief executive of SIPMM.

The new orders index for the electronics sector tumbled 10.1 points to 58.7, while the sector's new export orders index lost almost 10 points to 60.9.

For the overall manufacturing sector, the production index slipped 1.8 points to 59.8. The electronics sector recorded a steeper 12-point fall to 63.

The overall employment index dipped a marginal 0.4 point to 56.4. The decline in the electronics sector employment index -- due to the sector's restructuring -- was cushioned by higher employment growth in the non-electronics sector.

On a more positive note, the electronics sector supplier deliveries index rose a significant 10.8 points to 58.7, easing concerns that component shortages might disrupt raw materials supply to manufacturers.

Also, the overall inventory index fell below the 50 threshold level for the first time since January last year. Mr Poh said the non-electronics sectors were depleting their inventory holding and finished goods at a faster rate due to the higher output and to cope with the unexpected increase in order intakes.

Looking ahead however, the uncertainties surrounding oil prices and the stability of key currencies such as the euro, mean that companies will continue to adopt a cautious approach to their expansion strategies, said Mr Poh.

"The PMI has dropped below the psychological 60-point level during the last two months. If these uncertainties persist, business sentiment will be affected and the index will head further south to around 55 points."

http://business-times.asia1.com.sg/1/focus/focus11.html

-- Martin Thompson (mthom1927@aol.com), October 01, 2000

Answers

I always hate to see those two words - cautiousness and uncertainty - in any business news report.

Can anybody ever remember a robust burst of growth immediately following?

-- Billiver (billiver@aol.com), October 01, 2000.

I don't get it. Why electronics? I thought fuel shortages were supposed to hit harder in the so-called energy-intensive kinds of businesses, like chemicals, mining, railroads, and such.

-- Loner (loner@bigfoot.com), October 01, 2000.

What I don't get is that Singapore is right in the middle of Malaysia. Malaysia is a net oil exporting nation, presumably with plenty of oil for its own needs. This makes it more confusing. Why all the uncertainty about oil in Singapore, of all places?

-- Wayward (wayward@webtv.net), October 01, 2000.

Definitely disturbing news. Wonder how the market will react to this, given last Friday's bloodbath. I assume the electronics industry is sensitive to energy prices because new computer purchases, for example, can often be postponed if a business is in a cash-flow crunch due to energy prices. Or are we seeing this story simply because someone thought to gauge the electronics industry response to the oil situation? Could the same thing be said of other industries, but we're not seeing it because no one has written the story yet?

If I'm reading this right, BTW, it isn't oil supplies that are an issue, but oil prices, which explains why Singapore is worried despite its location.

-- Cash (cash@andcarry.com), October 02, 2000.