BUSINESS for manufacturers in the country improved just slightly in June, as a boost from “a solid rate of output expansion” was capped by “a softer increase in total new orders and the fastest drop in export sales” in the country’s three-and-a-half-year survey series, according to the latest Philippine monthly tracking IHS Markit conducts for Nikkei, Inc.

The IHS Markit Philippines Manufacturing Purchasing Managers’ Index (PMI) edged up to 51.3 in June from 51.2 in March — marking a three-month high and the second straight month of increase coming from five consecutive months of contraction — although it was still lower than the year-ago’s 52.9.

ASEAN manufacturing purchasing managers’ index, June (2019)

The manufacturing PMI consists of five sub-indices, with new orders having the heaviest weight at 30%, followed by output with 25%, employment with 20%, suppliers’ delivery times with 15% and stocks of purchases with 10%. The 50 mark separates readings above it that signal expansion from the preceding month from those below it that denote contraction.

A news release summarizing survey results noted that “employment trends remained subdued, while firms continued to build stocks to avoid shortages” and “[s]entiment about the future… dipped to the second-lowest recorded by the series to-date.”

Noting that “Filipino manufacturers were facing a weakening growth environment in June”, IHS Markit Economist David Owen said the latest survey “suggests that there will be less incentive to raise output in the months ahead, unless firms see a strong inflow of new orders.”

“Many companies may switch to using up their inventories, in which case activity could dry up,” Mr. Owen said, adding that they “also face notable labor market problems as resignations were once again mentioned by a number of panelists.”

June results made the Philippines the third best among the seven members of the Association of Southeast Asian Nations (ASEAN) tracked by the survey, up from fourth place in April and May. The Philippines topped the region in January, but slid to second and then to third place in February and March, respectively.

Last month, the Philippines fell behind Myanmar — which has topped the region since February — which recorded a 53 PMI, followed by Vietnam — second since March — which posted 52.5. The Philippines’ 51.3 reading was better than ASEAN’s 49.7 in June that was down from 50.6 in May, marking the first regional slowdown in four months.

Sought for comment, Robert Dan J. Roces, Security Bank Corp. Treasury Group’s assistant vice-president and economist, said, “As PMI continues to expand, we see sustained production growth in the near term as local consumption is buoyed by manageable inflation levels.”

“We also hope that the modest recovery in April of the export sector is indicative of better things to come as new export orders may have also grown with improved sales from overseas, despite the US-China trade war.”

Michael L. Ricafort, head of Rizal Commercial Banking Corp. (RCBC) research division, said that the June index may “reflect slower growth in banking loans in recent months as some manufacturers wait for local interest rates to go down further before they become more aggressive in their borrowings to finance new manufacturing facilities and expansion projects amid the declining trend in both inflation and interest rates in the recent months.” — Reicelene J. N. Ignacio