From the Front Page: Business picks up for factories in August

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BusinessWorld Reporter

The Philippine manufacturing industry saw “a modest improvement” in August with new business inflows and new jobs generated in the sector.

According to a survey conducted by IHS Markit for Nikkei, Inc., this came even as production growth slowed and input costs and prices rose “at marked rates.”

The Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) records the performance of the country’s manufacturing sector. A PMI reading above 50 means the business condition is healthy, while a reading clocking in at 49 and below indicates some deterioration.

How is that number calculated? The PMI has five sub-indices:

  • New orders – 30%
  • Output – 25%
  • Employment- 20%
  • Supplier delivery time – 15%
  • Stocks of purchases – 10%

Despite poor weather, heavy traffic, and lack of supply in the second quarter impeding production, last August’s performance recorded a “modest improvement” at 51.9 from the 50.9 reported in July.

According to the report, this was due to higher sales and increased operating capacity.

“Business conditions in the Philippines’ manufacturing sector improved further midway through the third quarter,” the report read. “While output growth softened, new business inflows picked up pace, and optimism improved. Job creation was also reported for the first time in three months.”

“Firms continued to scale up purchasing activity, which contributed to further accumulation in input inventories. Meanwhile, inflationary pressures remained strong, with both input costs and output prices rising at marked rates.”

Industry outlooks

According to Rizal Commercial Banking Corp. economist Michael L. Ricafort, the strong growth in real estate and construction factored into the uptick. He pointed to the FDIs that had become operational that helped in improving the August reading.

“The faster reading in Philippine manufacturing as of August 2018, compared to a month ago and versus a year ago, may partly reflect the continued growth in real estate and construction — and the positive impact on industries allied to/related to real estate and construction,” Mr. Ricafort said via email.

“[This], as well as the new record highs in foreign direct investments (FDIs) that have led to increased manufacturing activities as they become operational, as the Philippines is still among the fastest-growing economies in Asia,” he said.

Domestic consumption also drove last month’s demand as exports slowed due to the recent passage of the TRABAHO bill, the second package of the TRAIN Law which seeks to cut corporate taxes while also scrapping fiscal incentives the government considers redundant.

“This may have caused some upcoming/new investments in export-oriented industries that are currently entitled to fiscal/tax incentives [to take] on a wait-and-see attitude or make investments adjustments accordingly,” said Mr. Ricafort.

Bernard Aw, IHS Markit principal economist, said the Nikkei survey indicated that the Philippine manufacturing sector has regained some growth momentum in August, raising hopes that the demand slowdown in July was just a blip.

“With the indicators of price gauges remaining elevated, the August survey sends a hawkish message to policy makers,” said Mr. Aw.

Sought for an outlook, Mr. Aw said that the “Philippines’ manufacturing sector continues to expand on a steady pace, with forward-looking indicators pointing towards similar growth rates in coming months.”

With reporting by Anna Gabriela A. Mogato, Online Reporter