FACTORY OUTPUT in the country extended its declining streak to seven months in June, the government reported on Tuesday.

Preliminary results of the Philippine Statistics Authority’s (PSA) latest Monthly Integrated Survey of Selected Industries (MISSI), showed factory output — as measured by the Volume of Production index (VoPI) — contracting by 10.5% year on year in June versus the revised 9.9% decline in May and the 9.8% growth in June 2018.

Factory output decline averaged 9.6% last semester compared to the 13.5% growth average in 2018’s first half.

The Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) — which uses a different set of considerations — increased that month to 51.3 from May’s 51.2, though it was slower than last year’s 52.9. A reading above 50 signals improvement in business conditions from the preceding month, while a score below that point indicates deterioration.

Average capacity utilization — the extent by which industry resources are used in the production of goods — was estimated at 84.3%. Eleven of the 20 sectors registered capacity utilization rates of at least 80%.

ING Bank Manila NV senior economist Nicholas Antonio T. Mapa noted the “sub-performance” of the top five manufacturing subsectors, which drove the overall decline.

“The top five subsectors of food manufactures, chemicals, basic metals, radio-television-communication equipment, and furniture account for 76% of the total manufacturing sector and all these sectors saw contractions in the month of June,” Mr. Mapa said in an e-mail.

Eleven out of 20 subsectors registered declines in June, led by double-digit contractions in petroleum products (-69.3%), furniture and fixtures (-40.5%), and basic metals (-18.3%), followed by those in electrical machinery (-7.2%); machinery except electrical (-6.5%), non-metallic mineral products (-5.1%), tobacco products (-3.8%); textiles (-2.0%), food manufacturing (-1.9%), leather products (-0.9%); and miscellaneous manufactures (-0.2%).

Noteworthy to mention is that food manufacturing, which is the largest subsector in terms of contribution to factory output, has been registering declines for eleven straight months or since August 2018. Of those eleven months, seven showed double-digit declines.

For UnionBank of the Philippines, Inc. (UnionBank) chief economist Ruben Carlo O. Asuncion, the continued negative turnout in factory output can be attributed to the slowdown in government spending on public construction. “Although seven months [of] decline in industrial production growth may be a small sample, there is a correlation between infrastructure development and industrial growth, and thus, production,” Mr. Asuncion said in an e-mail.

However, the economist cautioned that further studies need to be conducted to firmly establish the link between the two variables.

“At this point, domestic production may have been adjusting to domestic price levels and the corresponding response of ‘contractionary’ monetary policy affecting firms’ plans for additional financing for more expansion,” Mr. Asuncion said.

Budget department data show the government spent P1.59 trillion in the first half, 0.84% less than in 2018’s first six months, with infrastructure and capital outlays totaling P311.4 billion, 11.7% less than the year-earlier P352.7 billion.

Analysts and the country’s economic managers blamed the decline in public spending on the four-month delay in the passage of the 2019 national budget. To recall, the government operated on a reenacted 2018 budget from January to April 15, when President Rodrigo R. Duterte signed this year’s national budget into law but vetoed P95.3 billion in funds that were not in sync with state priorities, slashing the total to P3.662 trillion. This meant that new projects were left unfunded for four months.

“The weak MISSI numbers point to another quarter of subdued performance from the manufacturing sector with the economy relying heavily on the services side of the equation gain (given that agriculture is expected to show flat growth), which could translate to a sub-6% print for GDP (gross domestic product),” Mr. Mapa said moving forward.

For UnionBank’s Mr. Asuncion, manufacturing “may still actually grow” albeit at a slower pace compared to the same period last year.

“If the delayed budget is actually spent in all of [the second half of 2019], we may see the slowdown in growth to recover and robustly grow in the coming months,” Mr. Asuncion added.

In a statement released by the National Economic and Development Authority, Socioeconomic Planning Secretary Ernesto M. Pernia said factory output is expected to “remain muted in the near term” amid a “less upbeat” business and consumer outlook for the third quarter of this year, coupled with “seasonal slack” in domestic demand and business activities during the rainy season. — Lourdes O. Pilar