Manufacturing PMI falls to record low

FACTORY ACTIVITY slumped to a record low in April, as the extended lockdown continued to prevent manufacturers from operating at normal capacity.

IHS Markit reported on Monday that the Philippines Manufacturing Purchasing Managers’ Index (PMI) plunged to 31.6 in April from 39.7 in March, indicating another “steep decline in operating conditions across the manufacturing sector.”

“The headline reading marked a new record low, with a deterioration recorded in all five sub-components of the index,” IHS Markit said.

April marked the second straight month of contraction. A PMI reading below 50 signals deterioration in operating conditions compared to the preceding month, while a reading above 50 denotes improvement.

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%).

Available data showed most of the seven ASEAN countries monitored saw deterioration in their PMI readings in April as well, with Vietnam topping the list at 32.7, down from 41.9 recorded in March. This was followed by the Philippines, Malaysia (31.3), Myanmar (29) and Indonesia (27.5). Data for Thailand and Singapore were not yet released.

“The Philippines Manufacturing PMI joined a chorus of data demonstrating the widespread and severe impact of lockdown measures on the global economy in April,” IHS Markit Economist David Owen was quoted as saying.

Production in the country “collapsed” last month to decline at the “quickest since the series began in January 2016,” as companies were unable to operate at full capacity during the Luzon-wide lockdown throughout April, IHS Markit said.

The strict lockdown measures also affected manufacturing demand after clients canceled orders due to restricted mobility, while consumers limited spending on essentials only.

Mr. Owen said the sharp decline in output signals that industrial production data could be “bleak” throughout the lockdown period. The enhanced community quarantine (ECQ) was extended until May 15 in Metro Manila and other high-risk areas while other parts of the country began a gradual easing to a general community quarantine.

Temporary shutdowns of companies and restrictive measures by governments abroad also pushed Philippine exports to fall “drastically.” IHS Markit said new orders plunged at the fastest pace in the series history.

Input buying declined “at a marked pace” last month from March as manufacturers “made large efforts to reduce purchasing” following the slump in demand, IHS Markit said.

Pre-production inventories and stock of finished products likewise declined significantly.

Philippine firms surveyed noted the slow delivery of stocks, as the lockdown hampered delivery of goods.

“Lead times increased for the ninth month running, with delays lengthening to the greatest extent in the series so far,” IHS Markit added.

Companies that were allowed to partially resume operations during the lockdown employed fewer people, while firms whose factories remained closed had to lay off “large numbers.”

Despite this, IHS Markit said the rate of job losses softened in April compared to the pace seen in March, indicating a slightly better outlook for future output.

The survey showed firms were “more upbeat” as easing of lockdown restrictions nears, saying that work on new products and completion of the pending orders will resume then. However, confidence “remained weaker.”

Meanwhile, input costs in April slipped for the second month in a row on dampened demand and the plunge in oil prices, but shortage in supply of raw materials still “weighed on cost burdens” for the manufacturers.

Businesses also lowered output charges last month in a bid to boost sales, with charges falling for the second consecutive month but at a softer pace from the month period.

As manufacturers were struggling with setbacks in overseas supply and demand, IHS Markit’s Mr. Owen said relaxation of lockdown protocols “may temper these issues, but they will likely remain in some form for the duration of this global crisis.”

He added that a quick return in factory activity could also mean a strong recovery of employment.

For Capital Economics, the broad contraction of PMIs among emerging Asian economies “are unlikely to have bottomed out yet in many places,” with the possibility of near-term recovery to be “very slow going.”

“The bad news is that the hit to industry in many places is unlikely to be passed the worst. Global demand has slumped and we don’t think it has bottomed out yet,” Capital Economics said in a note yesterday.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the sharp contraction in manufacturing activity was also seen in other ASEAN countries and some economies in Europe that implemented strict lockdown measures.

Mr. Ricafort said the PMI reading will likely pick up starting May as more areas shift to a general community quarantine (GCQ) where more companies are allowed to resume operations. He noted that rebound will be gradual.

For Security Bank Corp. Chief Economist Robert Dan J. Roces, “timely deployment of policy tools by our economic managers will ensure a soft landing and quicker rebound,” while recovery in demand will drive PMI higher in the coming months. — B.M. Laforga