Factory output growth slows for fourth straight month

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assembly line (fruits)
‘We… expect that election-related spending will drive up manufacturing, particularly production of food, beverage, tobacco, printing and paper products.’ — Socioeconomic Planning Secretary Ernesto M. Pernia

By Mark T. Amoguis, Researcher

MANUFACTURING growth decelerated for the fourth consecutive month in November to its slowest pace so far in 2018, even as it was better than the year-ago contraction, the Philippine Statistical Authority reported on Friday (PSA).

Preliminary results of PSA’s latest Monthly Integrated Survey of Selected Industries, showed factory output — as measured by volume of production index — increased by 1.0% year-on-year in November, slower than October’s revised 3.6% though still a turnaround from past year’s 10.1% decline.

Factory output volume growth averaged 10.1% as of November, better than the nearly flat 0.8% recorded in past year’s comparative 11 months.




In comparison, the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) improved to 54.2 in November from October’s 54, but lower than last year’s 54.8, signaling “notable improvement” in the manufacturing sector’s health. A PMI 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% in November. Eleven of the 20 sectors registered capacity utilization rates of at least 80%.

According to the National Economic and Development Authority (NEDA), the uptick in production in November was supported by increases in textile (45.8% that month compared to 42.4% in October), miscellaneous manufactures (25.6% from 31.2%), petroleum (22.0% from 45.3%), tobacco (21.1% from -8.6%), paper products (15.0% from 11.4%), beverages (11.7 from 6.1%) and electrical machinery (11.0% from 17.0%).

Declines, however, were noted in printing (-71.6%), food manufacturing (-18.3%), machinery except electrical (-14.5%), leather products (-8.4%), footwear and wearing apparel (-4.4%) as well as chemical products (-2.2%).

“While the November outturn of sustained positive growth for manufacturing, indices showed a declining trend starting on the second half of 2018,” Socioeconomic Planning Secretary Ernesto M. Pernia was quoted as saying in the NEDA statement.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc. (UnionBank), said that textiles industry propped November’s production growth. “This noted increase may have been prompted by increasing consumer demand due to Christmas spending. Compared to the same period last year, this is a huge improvement,” he said.

Mr. Asuncion said the overall slowdown in factory output was to be expected because orders for December are usually placed six months earlier and growth tapers off towards yearend.

NEDA said in its statement that reduced optimism among businesses and worsened consumer pessimism, as reflected in the central bank’s fourth-quarter surveys, likely weighed on manufacturing in those three months, and UnionBank’s Mr. Asuncion said he expects factory output growth to have slowed further in December.

Still, the coming months should see “moderate” inflationary pressures — particularly in cost of inputs — spurring production expansion, the NEDA said.

“We also expect that election-related spending will drive up manufacturing, particularly production of food, beverage, tobacco, printing and paper products,” said Mr. Pernia, who heads NEDA as director-general.

For Mr. Asuncion, factory output growth in “January will start to pick up as historical data dictates.”

“I expect 2019 to be more robust than 2018 as heightened inflation starts tapering off throughout 2019,” he said.