Factory activity hits 13-month high in Feb.

FACTORY ACTIVITY in the country improved in February to reach a 13-month high driven by sustained growth in output and new orders, despite delays in shipments from China due to the coronavirus disease 2019 (COVID-19) outbreak.

IHS Markit reported on Monday its Philippines Manufacturing purchasing managers’ index (PMI) slightly rose to 52.3 last month from 52.1 in January. This was PMI’s fastest pace in 13 months or since December 2018’s 53.2. Last month’s record also matched January 2019’s print.

“February survey data signalled a continuation of respectful growth across the Philippines’ manufacturing sector. Firms are enjoying resilient demand conditions, both domestically and abroad, with anecdotal evidence that pipeline work remains sufficient to support the positive production trend in the near term,” Joe Hayes, economist at IHS Markit, was quoted as saying.

The headline PMI measures manufacturing conditions through the weighted average of five indices: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%). A PMI reading above 50 denotes improvement in operating conditions compared to the preceding month, while a reading below 50 signals deterioration.

IHS Markit attributed the country’s improved headline PMI to a “modest” rise in output backed by “sustained growth in new orders from both domestic and overseas clients.”

“By increasing further above the neutral 50 mark, this was indicative of a faster rate of improvement in manufacturing sector operating conditions. That said, although the headline index reached its highest mark in just over one year, it remained below its historical average,” the report read.

Output volumes continued on an upward trend, but IHS Markit said the growth rate was “modest” and “little-changed” from the three-month high recorded in January.

IHS Markit said new orders rose by its fastest pace since October 2019, driven by higher demand for Filipino-manufactured goods and increased workload to foreign markets.

“COVID-19 poses a downside risk, but this seems to have been isolated to the supply-side so far as exports grew at the fastest rate in over one-and-a-half years,” Mr. Hayes said.

However, work backlog fell to its slowest pace in nearly four years, as shipments of raw materials from China were delayed. IHS Markit noted that February survey data “showed input delivery times lengthening to the greatest extent since December 2017,” adding to companies’ woes such as stock shortage and power outages.

“Given that stocks of purchases have risen strongly in recent months, firms should have appropriate buffers in place to withstand delivery disruptions, but if they continue, production volumes could be adversely impacted,” Mr. Hayes said.

Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, said last month’s PMI was a “surprise” amid a “potential downturn of global manufacturing due to the COVID-19 outbreak.”

“This uptick is despite the decline of PMIs in neighboring countries, like Malaysia, Thailand, Vietnam, South Korea, Japan and China, and the cause of which was primarily because of the COVID-19 epidemic that originated from China,” Mr. Asuncion said in an e-mail.

Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said the pick up in PMI last month may have been due to optimism after the phase one of the US-China trade deal was signed on Jan. 15, as well as the “positive effects of increased government spending, especially the catch-up plan on infrastructure spending.”

RECORD LOWS
Asia’s factories took a tumble in February under the weight of the rapidly spreading coronavirus outbreak, with a severe plunge in activity in China driving down output across the region.

China’s Caixin Media and IHS Markit purchasing managers’ index dropped to 40.3, its lowest reading since the series began in 2004, according to figures released Monday. South Korea’s PMI, a critical bellwether of global demand, dropped to a four-month low of 48.7 from 49.8 in January, while the Jibun Bank Japan index declined to 47.8, the lowest reading since May 2016.

Asia’s exporters see production woes amid coronavirus outbreak

Taiwan dropped below 50, the dividing line between expansion and contraction, while Thailand and Malaysia stayed in that territory. Vietnam’s PMI fell to a more than six-year low of 49. India’s Markit PMI cooled in February from the previous month’s level, which was the highest in almost eight years.

The factory sentiment data shows how the virus is rippling through the region, disrupting supply chains and depressing demand. Travel restrictions are widespread, schools and businesses are shuttered in parts of the region and governments are scrambling to provide stimulus to shore up their economies.

China’s official PMI plunged in February to a record-low 35.7 from 50 at the start of the year, according to data released Saturday. The big decline signals a worse-than-expected first-quarter contraction, with Nomura Holdings Inc. economists led by Lu Ting projecting the economy shrank 2.5% in the first three months of the year from the previous period.

For China, “evidence of factories re-starting — albeit very unevenly and tentatively — means that the recovery will be somewhat short of a resounding V-shaped rebound,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “The bigger picture of a tepid recovery from brutal seizures remains.” — B.M.Laforga with Bloomberg