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Philippine factory business improvement weakest in six months

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PHILIPPINE MANUFACTURERS in February registered their weakest improvement in operating conditions in six months after the softest rise in new orders in seven, according the latest survey compiled by IHS Markit for Nikkei, Inc.

“However, output grew solidly, with firms also increasing purchases and employment,” the latest report said on Friday.

The seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) slipped to 51.9 in February from 52.3 in January, “signalling a modest improvement in the health of the manufacturing sector,” it said.

The latest reading was the lowest since August 2018.

The 50 mark separates expansion from the previous month signaled by readings above that from those below it that indicate contraction.

That “modest increase” from January placed the Philippines second among seven tracked members of the Association of Southeast Asian Nations (ASEAN) behind Myanmar, which topped the group with a “solid” 53.1.




Vietnam came third with 51.2, while Indonesia, Thailand, Malaysia and Singapore recorded 50.1, 49.9, 47.6 and 45.7, respectively.

ASEAN’s headline PMI edged down to 49.6 in February from January’s 49.7.

Philippine “[e]xport orders expanded for the first time since August. Selling charges rose at a slower pace amid relatively soft cost inflation. Business sentiment edged up to the highest in six months,” the report read.

David Owen, economist at IHS Markit, said a weaker new business growth led to a lower February headline PMI, or a composite index designed to show a broad indication of the manufacturing sector’s health each month.

“That said, the survey also pointed to an increase in export orders for the first time since August, suggesting that softer demand signals were predominantly from the domestic market,” he said in a statement.

“There is little cause for concern though, with the PMI having been relatively strong over the last few months. With inflation falling and employment strong, manufacturers will likely see improved business conditions ahead.”

The report said the softer growth was underpinned by a weaker increase in order book volumes in February. It said the rate of expansion was at a seven-month low, “albeit still solid.”

“At the same time, new business from overseas grew for the first time in six months, with panellists reporting an increase in foreign clients and orders from existing clients,” it said.

It described output growth in February as “solid” as the pace of expansion accelerated from January. Philippine survey respondents highlighted stronger demand, new branches and machinery as key factors that raised production levels.

The report also said firms increased purchasing activity at a faster rate than January’s record low, although still weaker than on average.

But it said stocks of purchases rose only slightly as higher production requirements led to inputs being depleted at some manufacturers. Job growth was at a gradual pace after declining at the start of the year.

The PMI report said stocks of finished goods in February fell for the first time in eight months, with firms pointing to faster deliveries for their customers.

It said lead times were broadly unchanged, although some panelists saw a rise due to the continued port congestion and supply shortages of some raw materials.

“Output charges set by Filipino manufacturers rose solidly in February. However, the rate of inflation was slightly weaker than in January, continuing the trend of softer price rises compared to most of 2018” it said. “Firms that raised their fees generally linked this to higher raw material prices.”

Also in February, input price inflation was slightly lower, thus sustaining the relatively soft rate of increase seen in recent months.

Companies continued to report higher costs, with anecdotal evidence pointing to increased raw material and gasoline prices, as well as Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN).

“Finally, the outlook towards future output improved slightly in February, edging up to the highest for six months. Firms found that new projects, business development and strong economic conditions helped to bolster expectations of growth,” it said. — Victor V. Saulon