After seeing only marginal growth in the third quarter, business conditions at Asian manufacturers have continued to improve at a modest pace in the fourth quarter. However, there are significant variations in performance across the continent as well as sharply higher input prices.

At 50.8 in November, the Asia Manufacturing PMI (an aggregate based on national Nikkei and Caixin PMI results compiled by Markit) was slightly down from 51.0 in October. However this was still the second-strongest growth seen since manufacturing initially moved back into expansion five months ago.

As a whole, the region has shown signs of stronger demand in the first two months of Q4. New orders in Asia’s manufacturing economy continued to rise at a quicker rate than the Q3 average. Greater inflows of new business in China and Japan contributed to the latest improvement.

Encouragingly, an upturn in export demand was sustained in the middle of the fourth quarter as sales from abroad increased for the third straight month in November.

Rising material prices

Meanwhile, there were signs of inflationary pressures intensifying over the month. There were concerns over higher costs for raw materials, especially for items such as metals, plus there was a surge in futures prices during the month.

While the Asia Manufacturing PMI Input Prices Index hit a five-and-half-year high, reflecting sharply higher prices for pre-production materials, suppliers were far from overwhelmed, as they can be if demand increases. This suggests that price pressures are being constrained to some extent by a lack of fundamental supply-side drivers.

China accounts for half of Asian manufacturing and its recent improvements have helped lift business activity in the region. The Caixin PMI showed that Chinese manufacturing expanded for the third successive month in November, albeit modestly.

With the economic restructuring still underway, large layoffs at traditional industries were seen. However, there are signs that the rate of job shedding is beginning to slow. The Employment Index signalled the slowest rate of decline in 18 months during November.