Factory activity growth eases, still ‘solid’

By Elijah Joseph C. Tubayan
Reporter

IMPROVEMENT of operating conditions of factories in the country eased in December but remained “solid,” setting the stage for “stronger growth” this year, according to a monthly survey IHS Markit conducts for Nikkei, Inc.

The seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) stood at 54.2 in December, down from November’s 54.8 and the year-ago’s 55.7.

A PMI reading above 50 suggests improvement in business conditions from the preceding month, while a score below that signals deterioration.

The manufacturing PMI is composed of five sub-indices, with new orders having the biggest weight at 30%, followed by output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

ENDING 2017 ON A ‘STRONG NOTE’
“The Philippines manufacturing economy rounded off the year on a strong note, with the headline PMI showing a further improvement in operating conditions in December, buoyed by marked growth in both output and new orders,” the report read.

“While output and new orders both grew at slower rates in December compared to November, growth remained marked and above 2017 averages,” it added, noting that the fourth-quarter average was the fastest for 2017.

Employment and input inventories also improved last month as companies had a “more confident” business outlook, the report added.

At the same time, the survey noted “further signs of strain on supply chains, in part due to greater demand for manufacturing inputs,” and inflation pressures “remained elevated.”

Moreover, “[f]oreign sales barely increased in December, with survey data showing the weakest expansion in new export orders for four months,” the report read further.

Sought for comment, Security Bank economist Angelo B. Taningco in an e-mail attributed supply chain constraints to “a slowdown in suppliers’ delivery of manufactured goods amid increased traffic and port congestion.”

Overall, Bernard Aw, principal economist at IHS Markit, said in the report: “The Philippines manufacturing economy finished the year with its best quarter for 2017, setting the scene for stronger growth as the country moves into next year.”

“Output and new orders maintained marked growth rates in December. Domestic demand stood out as a key driver for manufacturing activity as export growth remained subdued,” he added.

OFF TO A STRONG START FOR 2018
Mr. Aw said that increased purchasing by manufacturers last month should provide further momentum as the new year begins.

“Other survey indicators point towards a strong start to 2018 for the sector. Business expectations about output in the year ahead strengthened to a four-month high while firms increased labor capacity and purchasing activity further during December,” he noted.

Security Bank’s Mr. Taningco said manufacturing should remain a key growth driver for the Philippine economy in 2018.

“My expectation of the sector’s sustained growth for the year is on the back of continued robust economic momentum in both the domestic economy and rest of the world that will enable local and foreign demand for Philippine manufactured items to stay buoyant,” he said.

The report also noted that respondents in December were more optimistic about the 12-month outlook, with the Future Output Index improving to a four-month high.

PMI readings of other Southeast Asian economies were not available as of early last night.