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Factory activity hits 7-month high in Oct.

REUTERS

PHILIPPINE manufacturing activity inched up to a seven-month high in October as new orders stabilized and business confidence improved with the further easing of lockdown restrictions in the capital, IHS Markit said on Tuesday.

The Philippines Manufacturing Purchasing Managers’ Index (PMI) edged up to 51 last month from 50.9 in September.

A reading above 50 indicates improving conditions for the manufacturing sector versus the previous month, and below the threshold means deterioration.

While it was a “marginal” increase, IHS Markit noted it was the strongest since March and above average for the year.

“October PMI data signaled a slight pickup in growth across the Philippines manufacturing sector. Some restrictions continued to ease, and the demand environment showed tentative signs of improvement with new orders stabilizing after six months of decline,” Shreeya Patel, economist at IHS Markit, said in the report.

However, output fell for a seventh straight month due to delivery delays, materials shortages, and rising costs, she said. Firms also noted historically weak demand conditions.

“Such pressures are likely to persist over the next few months, but a key concern comes from firms only partly able to pass on higher costs given the relatively weak demand environment,” Ms. Patel said.

PMI is the weighted average of five sub-indices: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

On the other hand, new orders steadied after six months in a row of contraction, IHS Markit said.

“International demand, meanwhile, fell modestly in October after stabilizing in the previous survey period,” it added.

Firms noted that the shortage in raw materials and poor transport conditions have caused “extensive delays.”

“Lead times have now lengthened in each month since August 2019, with the latest deterioration among the sharpest in the series,” IHS Markit said.

Manufacturers also increased stockpiles of raw materials for the first time since July, citing “current pressures obtaining inputs, rising costs and expectations of greater demand.”

Input prices surged in October due to shortages in metals, oil and packaging materials, as well as rising costs of transportation and energy.

“The rate of cost inflation was the joint-steepest since March 2018, and the fourth most marked in the series history,” IHS Markit said.

Firms also trimmed their workforce for the 20th straight month, mostly through voluntary resignations, although the rate eased since September.

“Nevertheless, after contracting sharply in 2020, the manufacturing sector is expected to grow by 19.1% on the year in 2021. Firms hope that demand conditions in both domestic and international markets improve, with looser restrictions likely to support greater customer demand,” Ms. Patel said.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), said the pickup in manufacturing is expected as Philippine trade and foreign direct investments improved.

“Local manufacturing activities could continue to pick up/recover in the coming months, fundamentally due to additional measures to further reopen the economy with the shift towards smaller/granular lockdowns and possible easing of NCR’s alert level to 2 or 1 by December 2021,” he said in an e-mail.

UnionBank of the Philippines Chief Economist Ruben Carlo Asuncion said in a Viber message that trade reaching pre-pandemic levels benefited the manufacturing sector.

“With more reopening, we do expect for manufacturing to grow further in the next coming months.”

ASEAN REBOUND
The manufacturing sector in the Association of Southeast Asian Nations (ASEAN) bounced back in October, reaching an all-time high of 53.6. This was the first expansion in manufacturing seen since May.

IHS Markit attributed this to the record growth seen in both factory production and new orders, although noted that supply disruptions have added to “intense inflationary pressures.”

Indonesia topped the region with a record headline PMI of 57.2, followed by Malaysia (52.2), and Vietnam (52.1).

The Philippine PMI reading was the fourth highest in Southeast Asia, only ahead of Thailand (50.9). Myanmar’s PMI, on the other hand, recorded a contraction to 43.3.

“This was good news following a third quarter plagued by downturns, and the latest data suggest that the sector has turned a corner as COVID-19 restrictions loosen and the sector rebounds. Next month’s PMI data will subsequently give the first indication into the ongoing strength of the recovery as it gets underway,” IHS Markit economist Lewis Cooper said in a separate report. — J.P.Ibanez

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