February 4, 2023

Filipino Guardian

Sentinels of Filipino Free Press

Factory activity up inches in November


By Luisa Maria Jacinta C. Jocson, reporter

FACTORY ACTIVITY in the Philippines rose for the 10th straight month in November, even though jobs fell for the first time since March, an S&P Global survey showed on Thursday.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) rose to 52.7 in November from 52.6 in October, reflecting a “moderate” pace of expansion.

“Growth across the Philippine manufacturing sector entered its tenth straight month, with a modest expansion in operating conditions since September. The improvement across the sector is primarily due to better demand conditions that have led to higher sales and production volumes,” said Maryam Baluch, economist at S&P Global Market Intelligence, in a report.

Factory activity up inches in NovemberA PMI reading above 50 indicates an improvement in operating conditions compared to the previous month, while a reading below 50 signals a deterioration.

The Philippines had the highest PMI reading among the six Association of Southeast Asian Nations (ASEAN) economies in November, beating the regional PMI average of 50.7.

Thailand had the second highest PMI reading at 51.1, followed by Indonesia at 50.3. On the other hand, Malaysia (47.9), Vietnam (47.4) and Myanmar (44.6) all recorded declines in November.

“Growth across ASEAN manufacturing slowed again in November, with the latest PMI data signaling only a modest improvement in operating conditions. The slowdown reflected weaker output growth, while factory orders fell for the first time in 14 months,” said S&P Global.

According to S&P Global, the latest data signals a sustained improvement in operating conditions in the Philippine manufacturing sector.

“The growth resulted from greater demand, which led to faster expansion of production levels and factory orders. Buying activity also picked up faster in November,” she added, noting that manufacturing output and factory orders rose for the third straight month.

However, the seasonally adjusted employment index slipped below the neutral mark of 50, signaling a fall in payrolls for the first time since March.

“In the last survey period, too, companies recorded a reduction in staff, thus ending the surge in job creation that began in May. Employee resignations were frequently cited as a reason for the decline in the workforce,” said S&P Global.

Sales were also impacted by sluggish export conditions.

“Weak demand from overseas customers weighed on overall order growth across the sector, which was mainly driven by domestic demand. Nonetheless, the decline in export sales has moderated from the recent low in October,” S&P said.

Firms increased their purchases of inputs for the third straight month as they expected more orders in the coming months.

“The rate of expansion accelerated from October at the fastest in six months, signaling a solid increase overall. The growth in production and buying activity caused inventories of inputs to increase in November. Companies increased inventories in anticipation of greater demand,” S&P said.

Meanwhile, the month saw ongoing supply chain disruptions due to port congestion and material shortages, but the incidence of delays was at a three-month low.

Rising inflation drove up corporate spending.

“Input price inflation accelerated for the second month in a row as higher energy costs were largely blamed for the recent increase in spending. Similarly, producer prices rose faster in November as companies opted to pass costs on to customers,” S&P said.

Bangko Sentral ng Pilipinas (BSP) expects November inflation to range between 7.4% and 8.2%.

“While manufacturing has posted strong gains in 2022, heightened price pressures pose an ongoing threat. Coupled with supply chain issues, the peso weakening against the dollar adds further fragility,” Ms. Baluch said.

Ms Baluch said rising interest rates and further monetary tightening could hurt customer spending.

The BSP has hiked rates by 300 basis points (bps) since May, taking the policy rate to a 14-year high of 5%. It is widely expected to present another 50 basis point rate hike at its December meeting.

Factory activity was hit by “less positive” job trends as the fall in the seasonally adjusted labor index dampened potential growth, Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila, said in a Viber message.

“This shows that the labor market recovery still has a long way to go before we return to pre-COVID levels,” he said.

Mr Mapa also said domestic demand has fueled growth as most manufacturing is related to food consumed locally. However, flat external demand reflected the slowdown in global trade, he added.

Manufacturing companies are “very bullish” on output growth over the next 12 months, according to S&P Global.

“In addition, confidence has strengthened in the month. This has often been associated with greater customer activity, the opening up of the economy and more companies taking on new projects,” she added.

Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said in an email that increased manufacturing activity ahead of the holiday season would also boost manufacturing activity.

“Nevertheless, we are also feeling a seasonal demand creeping into the main demand scene. I expect PMI to remain in expansion territory through the end of the year,” Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc., said in a Viber message.

The Headline PMI measures production conditions through the weighted average of five indices: incoming orders (30%), output (25%), employment (20%), supplier delivery times (15%) and purchased inventories (10%).