MANUFACTURING activity kept expanding in Singapore last month, but at a slower rate.

The purchasing managers' index (PMI) produced a reading of 50.7 points, showing a third straight month of expansion. But this was a fall of 0.7 points from November, and a reading barely above the 50-point mark, which indicates expansion. This suggests that factory output is growing at a slower pace as the new year gets under way. It tells a similar story to other regional PMI readings - a forward-looking indicator - of late, that have indicated slower growth in manufacturing production.

HSBC economist Leif Eskesen said: 'The pace of expansion eased in December, on account of slower growth in output and orders, including export orders, while input prices picked up in response to the rising underlying cost pressures associated with the tightening capacity constraints in the economy.'

The December indexes, compiled by the Singapore Institute of Purchasing and Materials Management (IPMM) for new orders, new export orders and production, were all still in expansion but had lower readings than in November.

The new orders index fell 0.6 points to 50.3, while new export orders slumped two points to 50.7. The production index came in at 50.5, which was 1.7 points lower than in November.

The electronics PMI was also in expansion for the second straight month at 52.2, while the electronics sector's employment index grew for the sixth straight month at 50.4.

CIMB economist Song Seng Wun said the PMI readings regionwide last month were mixed, but 'concerns over the vitality of external demand appear to have subsided as consumption picks up in advanced economies'.

China's official PMI fell slightly to 53.9, while South Korea's rose to 53.9. The United States also saw expansion, its reading rising slightly to 57.

DBS economist Irvin Seah said: 'Though the PMI figures continue to indicate that the manufacturing sector is still in expansion mode, the pace of expansion is moderating. This is again another piece of evidence to suggest a normalisation of the production cycle.'

He said that with the coming Chinese New Year holiday in China, plants there will go into a lull. This could even lead to a shrinking in manufacturing activity in Singapore in the coming months.

Mr Seah added that the electronics industry may also dip into contraction mode in the coming months, as global inventory restocking comes to an end.

Citigroup economist Kit Wei Zheng was upbeat, saying that recent improvements in a wide range of US data, as well as low inventory levels, suggest little reason to be overpessimistic.

'The recent pick-up in the US ISM PMI - a good leading indicator of Asian exports - may even suggest scope for a slight reacceleration in manufacturing (excluding biomedical) by (the second half of this year) or even earlier.'

But economists noted rising cost pressures, owing to the higher costs of energy and other raw materials. The index for input costs rose 0.4 points to 53.7 last month, the fourth straight month of gains and the highest in 28 months.

Ms Janice Ong, IPMM executive director, said that a strong local currency, as well as inflationary pressures and uncertainties caused by global factors such as the recent Australian floods, which have affected raw material supplies, could drag down future PMI readings.

chanckr@sph.com.sg