Light bulbs are produced at Dien Quang Lamp Joint Stock Company. The PMI remained below 50.0 in June, showing another fall after a drop in May. — VNA/VNS Photo Thanh Vu

HCM CITY (Biz Hub)— The Viet Nam manufacturing sector was hit by marked downturns in output and new orders in June, leading companies to cut employment and purchasing, according to HSBC.

At 46.4, down from 48.8 in May, the seasonally adjusted HSBC Viet Nam Manufacturing PMI (purchasing managers' index) slumped to its third-lowest reading since the survey began in April 2011.

The PMI remained below 50.0 (50 being the neutral level), showing another fall after a drop in May, according to the HSBC report released yesterday.

The domestic market was the principal source of demand weakness in June, as the level of new export business fell only slightly, the report said.

With inflows of new work from both domestic and foreign sources deteriorating, manufacturing production also fell substantially.

Since the survey's inception three years ago, output and new business have only fallen at a faster pace on one occasion, in July 2012.

The sharp reduction in inflows of new business also led to a solid build-up of stocks of finished products in June. Inventories rose at the fastest pace in a year.

This replenishment of stocks may also reduce the need to raise production in coming months.

Weak market conditions also influenced decisions relating to employee hiring, purchasing and input holdings.

Job losses were reported for the second straight month in June, with the rate of reduction the steepest in 11 months.

Part of the latest cut in headcounts reflected the build-up of spare capacity in the manufacturing sector, as highlighted by a substantial drop in the level of work-in-hand (but not yet completed) at factories.

Purchasing activity fell sharply during June, contributing to a further slight decline in stocks of raw materials and semi-manufactured goods.

Weaker demand for raw materials was also felt at suppliers, leading to an improvement in average lead times for the third month in a row.

Manufacturers indicated that successful negotiations with vendors and agreements for faster payments had also resulted in shorter delivery times.

Price pressures continued to ease during the latest survey month.

Although average input costs have risen throughout the year-to-date, the latest rate of inflation was only marginal and the least marked during the current sequence of increase.

Meanwhile, manufacturers cut their average selling prices in an effort to stimulate sales.

Output charges subsequently fell at the quickest pace since July 2012.

Commenting on the Viet Nam Manufacturing PMI survey, Trinh Nguyen, Asia Economist at HSBC, said: "The sharp downturn of manufacturing activity suggests that domestic weakness continues to weigh on overall business activity. Sales are sluggish despite discounting measures due to low appetite for consumption."

"Coupled with this, external conditions have weakened, with lower demand from China and South Korea. With June headline inflation accelerated, the central bank will adopt a wait-and-see mode for now," he added.

The PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives at about 400 manufacturing companies.

It is a composite index based on five individual indexes for new orders, output, employment, suppliers' delivery times and stock of items purchased. — VNS