By Elijah Joseph C. Tubayan
IMPROVEMENT of Philippine manufacturing activity remained “modest” in September, according to a monthly survey IHS Markit conducted for Nikkei, Inc., but “robust” domestic consumption, a “solid” rise in new orders and “upbeat business confidence” offset muted foreign demand and “strong” inflation to propel the country back to fore among major economies of the Association of Southeast Asian Nations (ASEAN).
The Philippines’ Nikkei Purchasing Managers’ Index (PMI) notched up to 52 in September from 51.9 in August, higher than the 50.5 average of the seven major ASEAN markets tracked by the regional report that was down from the preceding month’s 51.
The Philippines last topped the region in December last year.
A PMI reading above 50 indicates an improvement in business conditions from the preceding month, while a score below that mark signals deterioration. The manufacturing PMI is composed of five sub-indices, with new orders weighing 30%, output at 25%, employment at 20%, suppliers’ delivery times at 15% and stocks of purchases at 10%.
“Manufacturing conditions in the Philippines improved further at the end of the third quarter, with the latest PMI data continuing to signal robust demand and upbeat business confidence,” the report read.
September took the third quarter’s pace of improvement to 51.6, “suggesting that growth had moderated from [53.1] the previous quarter,” the report added.
Output growth accelerated in September, while the rise in new orders “remained solid” overall.
Export orders, however, fell, capping six straight months of expansion.
That, the report noted, means demand that fueled overall improvement was largely from locals.
It noted that September marked the second straight month of net employment gains amid the need “to raise staff numbers to meet increased demand.”
At the same time, Nikkei said that firms continued to feel inflation pressures, which they passed on to customers.
“Filipino goods producers continued to face strong cost increases as the third quarter concluded. Input price inflation remained steep and well above the historical average. A combination of factors contributed to inflation, including a strong dollar, higher prices for raw materials (such as steel, electronic and electrical components, plastics, paper, sugar, and fuel), effects of the TRAIN laws and supply shortages,” the report read, referring to Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act.
“Firms, in turn, passed on higher costs to customers in order to preserve profit margins. Prices charged for Filipino manufactured products were raised at the second-highest rate in the survey history during September.”
Business confidence about output in the next 12 months remained elevated in September, though slightly lower than in August, the report added.
Sought for comment, Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. said in an e-mail yesterday that the pickup in manufacturing activity was due to the “sustained growth in real estate and construction, and the positive effects of allied industries that are related to both real estate and construction such as construction materials.”
He attributed the sustained growth of purchases amid high inflation to expectation of further price increases.
“The rising trend in inflation may have also prompted some manufacturers to front-load production as a hedge vs. any further increase in prices/inflation in the future,” said Mr. Ricafort.
He added that reconstruction in northern Luzon in the wake of the typhoon that struck last month could further spur construction-related manufacturing activity.
IHS Markit Principal Economist Bernard Aw was quoted in the report as saying that the outlook remains positive despite high inflation.
“September survey data suggest that growth in coming months is likely to be resilient, while strong cost inflation remains a key concern. In general, Filipino manufacturing firms are optimistic about the business outlook in the year ahead,” he said.
Inflation in August clocked in at a nine-year high of 6.4% and is expected to accelerate further in September to 6.8% according to BusinessWorld’s poll last week of 13 economists, while the central bank has given a 6.3 – 7.1% estimate range.
Noting that “inflation was partly driven by typhoon-related factors,” Mr. Aw said “a weaker peso, supply shortages, higher global commodity prices and the TRAIN laws continued to drive inflation higher.
“As such, the latest PMI price gauges raised doubts about prospects that consumer inflation will reach a peak in September, suggesting instead that inflation could remain elevated in the months ahead.”
ASEAN manufacturing purchasing managers’ index, September (2018)