January 31, 2023

Filipino Guardian

Sentinels of Filipino Free Press

October factory output growth slows

Filipinos work on the assembly line at Kinpo Electronics factory in Malvar, Batangas, August 10, 2018. — REUTERS

By Luisa Maria Jacinta C. Jocson, reporter

FACTORY PRODUCTION in the Philippines grew more slowly in October, reflecting a modest rise in new orders despite elevated inflation and supply chain disruptions, S&P Global said on Wednesday.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) was 52.6 in October, down from 52.9 in September.

Despite the slightly slower expansion, S&P Global said the Philippine index was still above historical averages.

October factory output growth slowsA PMI reading above 50 means better operating conditions than the previous month, while a reading below 50 signals the opposite.

“The latest PMI data showed another round of expansion in the Philippine manufacturing sector. Demand conditions continued to improve, leading to further increases in production and new orders from commodity manufacturers,” said Maryam Baluch, economist at S&P Global Market Intelligence, in a report.

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%).

Philippine manufacturers reported improved demand in October, driving growth in output and orders for the second straight month, S&P Global said.

“While overall factory orders rose, the volume of new work from abroad shrank the most since the latest string of declines began in March,” it said.

Manufacturers also increased their workforce for the sixth straight month, while input purchasing activity increased for the second straight month, albeit at a slower pace.

“Despite the pace of recent rebounds, which eased slightly during the month, companies have continued to increase capacity and inventories to support future growth,” Ms Baluch said.

S&P Global noted that the manufacturing sector was plagued by supply-side constraints as supplier performance fell sharply and delivery times lengthened. The shipping delays were mainly due to bad weather and port congestion.

Higher demand and supply chain disruptions led to higher backlogs for the second straight month.

However, S&P Global said manufacturing companies in the Philippines were feeling increasing inflationary pressures.

Headline inflation accelerated to 6.9% in September.

“The average cost has increased faster compared to September. While factory gate fees rose at a marginally slower pace in October, the latest reading was among the fastest ever (since January 2016),” it said.

After falling to a 20-month low in September, input price inflation rose in October on higher energy and material costs as the peso weakened against the US dollar.

Nevertheless, the manufacturers increased the fees more slowly than they have since February.

They remained upbeat on production estimates for the next 12 months as they expect demand to continue picking up, S&P Global said.

Factory activity remained expansionary despite increased inflation and peso depreciation, said Robert Dan J. Roces, chief economist at Security Bank Corp

“This can be attributed to high-season restocking and ongoing looser mobility restrictions,” he said in an email.

While this bodes well for economic growth for the rest of the year, Mr Roces said rising input prices and supply constraints could hamper expansion in the manufacturing sector.

The industry’s expansion may have been driven by local demand as exports have fallen, said Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc

The Philippines recorded the highest PMI reading among six Southeast Asian countries, followed by Indonesia (51.8), Thailand (51.6) and Vietnam (50.6). Manufacturing activity in Malaysia (48.7) and Myanmar (45.7) contracted in October.

On average, the Association of Southeast Asian Nations (ASEAN) PMI was 51.6 in October, down from 53.5 in September.

S&P Global said this was the slowest improvement in operating conditions across the region since the expansion series began in October 2021.

“The ASEAN Purchasing Managers’ Index is finally coming down to earth,” said Miguel Chanco, the Pantheon’s chief emerging Asia economist.

“The ASEAN-wide details suggest the headlines are softening. We expect any convergence to imply a further slowdown in output growth, especially considering the still rapid build-up in finished goods inventories and the third decline in backlogs in the last four months,” he added.