Manufacturing grows at slower pace in Nov

MANILA, Philippines - Philippine manufacturing sustained its growth trajectory in November albeit at a slower pace as manufacturers were burdened by cost inflation caused by the weakening of the peso, according to the latest reading of the Nikkei Purchasing Managers’ Index (PMI).

The PMI for the Philippines registered a reading of 56.3 in November, signaling expansion in factory output and improving operating conditions.

While the reading during the reference period was slower than the record high of 57.5 in September and 56.5 in October, this was still higher than the average reading in January.

An index reading of above 50 indicates improvement in business conditions and activity while a reading below 50 indicates the opposite. The Nikkei Manufacturing PMI is released monthly ahead of official economic data.

IHS Markit, the firm that collected data for the PMI, attributed the continued improvements in manufacturing conditions in the Philippines to sustained growth in total output and new orders. Growth in new orders for export also quickened.

Purchasing managers surveyed during the reference period reported hiring additional workers during the reference period to meet increased production volumes.

Firms surveyed also reported having greater production capacity to cope with increased orders. As a result, backlogs in orders were lowest since August.

Manufacturers, however, are feeling the rising cost pressures in obtaining inputs because of the continued depreciation of the peso against the dollar. Firms hence alleviated cost pressured by hiking prices, hence passing some of the higher input costs to consumers.

“The Philippines continued to enjoy strong growth in the manufacturing sector, underpinned by solid client demand. Of particular note is the sharp upturn in new export sales. Overall, sustained demand led to greater new orders and busier production schedules. Firms had to continue expanding employment levels and input purchases to keep up with higher operational requirements,” said IHS Markit economist Bernard Aw in a commentary.

“However, concerns over further depreciation of the peso remained, especially after a sharp weakening of the exchange rate in most of November. This will place more cost pressures on manufacturers that rely heavily on imported pre-production goods. At the same time, geopolitical tensions may threaten further growth in exports,” he added.

Despite the cost inflation, Philippine factory output still led neighboring countries in Southeast Asia as shown in the Nikkei ASEAN Manufacturing PMI in November.

Trailing behind the Philippines in manufacturing conditions during the reference period were Vietnam, Myanmar, Indonesia, Thailand, Malaysia and Singapore.

The ASEAN manufacturing PMI remains in contractionary territory with a reading of 49.4 in November from a reading of 49.2 in the previous month.

IHS Markit noted declines both in output and new orders in the region. Softer demand caused firms to trim their purchasing activity in November.

Companies also continued to face rising input costs, with average cost burdens being the highest during the year. As such, most firms in the region raised prices to remain profitable.

Improved manufacturing conditions were seen in the Philippines, Vietnam, and Myanmar while declining business conditions were seen in Thailand, Indonesia, Malaysia and Singapore.

“Further deteriorations in Indonesian and Thai manufacturing conditions were key factors behind a further decline in the ASEAN PMI. Despite strong performances in the Philippines and Vietnam, overall growth in the region is likely to remain challenging amid a subdued global economy,” Aw said.

“At the same time, a markedly stronger US dollar against the regional currencies will likely exert further upward pressure on import prices. This implies that inflation may intensify further in the coming months,” he added.