Manufacturing PMI slips in May

FACTORY ACTIVITY in the Philippines dipped in May, as the growth in production and new orders slightly eased, S&P Global said on Wednesday.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) stood at 54.1 in May, slightly down from 54.3 in April.

“The latest headline index reading signaled a further expansion across the manufacturing sector, and one that was the second-fastest since November 2018,” it said.

May marked the fourth consecutive month that the PMI was above the 50 mark, which separates growth from contraction.

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%).

The Philippines’ PMI reading was the second fastest among five Association of Southeast Asian Nations (ASEAN) countries in May, behind only Vietnam’s reading of 54.7.

S&P Global said that production and new orders grew at “solid” rates in the Philippines last month, although the pace of growth softened from April.

However, foreign demand for Philippine goods contracted for a third straight month, which S&P Global attributed to the strict lockdowns in China that caused shipment delays.

Domestic demand improved amid the further loosening of pandemic restrictions in the country.

Metro Manila and various other parts of the country have been on Alert Level 1 since March, as coronavirus disease 2019 (COVID-19) cases remained low.

“As pandemic restrictions ease, strong demand conditions resulted in firms increasing hiring activity for the first time since (February) 2020,” S&P Global economist Maryam Baluch was quoted as saying.

Manufacturing firms also sharply increased their purchases of pre-production inputs and build up their stocks. Holdings of raw materials and semi-finished items went up for a ninth straight month, while post-production inventories expanded at the fastest rate since December 2016.

“Companies continued to accumulate stocks in anticipation of greater demand in the coming months,” Ms. Baluch said.

S&P Global said that the average cost burden and output costs jumped in May, while lead times also lengthened to a greater extent than in the previous month.

“Additionally, business confidence remained strongly optimistic, with firms hopeful of greater output in the coming 12 months. However, the downside risks to the sector come in the form of persistent inflationary pressures and supply chain disruptions which have been further exacerbated by the war in Ukraine and China’s zero-COVID policy,” Ms. Baluch said.

The Bangko Sentral ng Pilipinas (BSP) on Tuesday said inflation likely settled between 5% and 5.8% in May, due to higher pump prices and a weaker peso. Headline inflation for April was at a three-year high of 4.9%. Inflation data for May will be released by the Philippine Statistics Authority (PSA) on June 7.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail that the increase in employment by manufacturing firms was a good development, as it indicates an increase in business confidence.

“Inflation and production costs remain issues and will likely stay until supply chain constraints are removed or mitigated,” he added.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the Ukraine-Russia conflict and China’s lockdowns will continue to impact the supply chain.

“I think that geopolitical risks are going to be protracted and would be difficult to unwind even when hostilities actually stop,” Mr. Asuncion said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that despite the slight decline in the country’s PMI this month, it was still among four-year highs.

“Higher inflation/prices could have eaten some of the investments/growth that would otherwise have been intended for the manufacturing sector had it not been for the Russia-Ukraine war… Higher interest rates, especially long-term tenors/bond yields led to higher borrowing costs/financing costs that could have also led to some slowdown in the PMI manufacturing gauge,” Mr. Ricafort said. — Tobias Jared Tomas