Nov. factory reading best in 11 months

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assembly line (fruits)

FACTORY ACTIVITY in the Philippines improved for the fourth straight month in November, marking the best performance in 11 months as production grew at the fastest clip in nearly two years amid slower inflation, according to the latest monthly survey IHS Markit conducted for Nikkei, Inc.

Vietnam, however, outperformed the Philippines to seize the helm among the eight Association of Southeast Asian Nations (ASEAN) members covered by the monthly survey.

The Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) stood at 54.2 in November from 54 in October, “signalling another notable improvement in the health of the manufacturing sector,” according to a summary of survey findings.

The Philippines slid to the second place among the covered ASEAN economies in November after staying on top for two consecutive months since September, as Vietnam’s factory activity was “the best of all” with a 56.5 PMI, riding “the sharpest increase in output in over seven years.”

A PMI reading above 50 indicates improvement in business conditions from the preceding month, while a score below that point signals deterioration. 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%.

“Operating conditions in the Philippines’ manufacturing sector were buoyed by sharp uplifts in output and new orders in November. Production grew at the quickest rate in 23 months, despite the sharpest fall in new export orders seen across the series history,” the report read.

The report noted that new orders that month were the strongest in a year, sustaining a seasonal trend in the year’s final quarter, even as new export orders declined for the third month in a row “at their fastest pace on record”.

And despite strong demand, employment was largely unchanged.

“Employment growth remained weak, while backlogs continued to decline,” the report read, adding that “[i]nput prices rose at their softest pace of the year so far, leading to a reduction in selling charge inflation.”

Estimates for November inflation released by the Bangko Sentral ng Pilipinas and the Department of Finance (DoF), as well as a poll BusinessWorld conducted last week bared expectations of a slowdown from September and October’s nine-year-high 6.7%, with the BSP expecting 5.8-6.6%, while the DoF’s estimate and the median in BusinessWorld’s poll matched at 6.3%.

The PMI report also noted that suppliers were “troubled by port congestion at Manila, as delivery times lengthened for the fourth month in a row,” although the latest increase was “fractional” and did not dent vendor performance.

“Inflationary pressures cooled at manufacturers in the Philippines in November. While input costs have risen at a sharp rate throughout 2018 — partly due to new tax laws and unfavorable exchange rates — the latest increase was the weakest seen throughout the year. Concurrently, output charges rose at a softer pace, recording in November the lowest inflation seen since June,” the report noted.

The Philippines Statistics Authority is scheduled to report November inflation data on Wednesday.

The report said Philippine manufacturers still expect to sustain their overall sharp growth, with some noting the development of new products would boost demand and output.

The report quoted David Owen, economist at IHS Markit, as saying: “Output growth remained sharp in Philippines’ manufacturing sector during November, building confidence for stronger GDP (gross domestic product) growth in Q4.”

“On the flip side, export orders continued to decline, with the latest drop the quickest seen since the survey began nearly three years ago,” Mr. Owen said.

“Manufacturers were unfazed though, as domestic demand was strong enough to offset the fall. Nonetheless, should the trend continue in line with the global trade slowdown, it may dampen output growth in the new year,” he added.

“Input prices eased to their weakest rate of inflation all year in November. Recent pressures from the TRAIN (Tax Reform for Acceleration and Inclusion) laws and the exchange rate with the dollar are showing signs of wavering, offering hope of a more settled end to 2018 for manufacturers.” — Elijah Joseph C. Tubayan