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The contraction in the manufacturing PMI continued in August

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The results of the PMI (Purchasing Managers Index) survey of the Istanbul Chamber of Industry (ISO) Turkey for the period of August 2022 were announced. According to the survey results, in which all measured values ​​above the threshold value of 50.0 indicates an improvement in the sector, the PMI headline, which was 46.9 in July, became 47.4 in August. Although operating conditions weakened for the sixth consecutive month, the latest survey data indicated that the deterioration in the manufacturing sector has slowed slightly. In line with the headline index, the slowdown in production was more moderate than in July.

However, the decline continued sharply in August due to difficult market conditions and high prices. The decline in new orders accelerated in August and was the highest since May 2020. Survey companies called attention to the weakness of the global economy, as well as insufficient demand and price increases. In parallel, new export orders also slowed, while some participants reported a decline in European demand. The fact that employment continued to rise and that the growth rate reached its highest level in the last three months was the relatively positive development of the survey. Although the effects of price pressures on customer demand and production volumes continued, the signs of a slowdown in inflation continued in the middle of the third quarter.

Factors such as the high trend in raw materials, transport and energy costs, the rise in the minimum wage and the depreciation of the Turkish lira contributed to the increase in input costs and sales prices. However, inflation rates have fallen to the most moderate levels of the past 31 months in input prices and the past 18 months in finished product prices. Manufacturers reported that they reduced their input purchases in August as current input inventories are amply sufficient to meet production requirements. The purchasing companies, on the other hand, continued to experience an increase in delivery times due to the difficulties encountered by suppliers in procuring materials. The slowdown in sales made it possible to bring the upward trend in inventories of finished products to four months. The increase in inventories was at the fastest pace since September 2015.

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Commenting on data from the Istanbul Chamber of Industry Manufacturing PMI survey in Turkey, Andrew Harker, director of economics at S&P Global Market Intelligence, said:

“The situation is a bit more worrying for new orders, which have slowed at their fastest pace since the start of the Covid-19 epidemic, despite the slowdown in production in August. There are obvious difficulties in market conditions due to weaknesses in both the domestic and foreign markets.

The fact that cost pressures continue to ease in August provides some relief for companies. The decrease in the increase in purchase prices to the most moderate level in more than two and a half years has also slowed the increase in selling prices. A more moderate trend in price increases could help limit the deterioration in demand in the coming months ”.

Production decreased in most of the 10 sectors followed

The sector PMI of the Istanbul Turkey Chamber of Industry highlighted that difficult operating conditions continued in many sectors in August. As in July, the only sector with new orders rising in August was land and sea vehicles. On the other hand, production decreased in most sectors. Although employment was the main positive indicator in the latest survey, the overall decline in input price inflation has partly eased the cost pressure on firms.

New orders slowed in nine of the 10 sectors followed in August. The exception to this was the land and sea vehicle sector, which has grown in three of the last four months. The most noticeable slowdown in new orders was in the textile sector, with the highest rate since May 2020. While the weakness also manifested itself in the conditions of foreign demand, the only sector that could increase new export orders was that of food products. As new orders dropped, most sectors also slowed production in August. Compared to July, production increased only in the land and sea vehicles, machinery and metal products sectors. Textiles were the sector where production slowed the most, similar to new orders.

Despite the loss of production momentum and new orders, most sectors increased employment in August. The strongest increase was in the chemicals, plastics and rubber sectors. While employment decreased in three sectors, the most significant decrease was in the manufacture of non-metallic mineral products.

The drop in input cost inflation across all 10 sectors followed in the survey bolstered the manufacturing sector to some extent in August. While non-metallic mineral products continued to be the sector with the fastest rising input prices, the lowest inflation was realized in the base metals sector.

Due to the sharp slowdown in new orders in the textile sector, companies have kept the price increase of final products at a very moderate level to increase demand. Most other sectors had lower rate hikes than the previous month. The only exception to this situation was the machinery and metal products sector. While all ten industries faced longer lead times in August, signs continued that the worst of the supply chain disruptions had passed. While the increase in delivery times for textile companies has been very limited, the most evident deterioration has occurred in machinery and metal products.

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