MANILA, Philippines – Manufacturing output further slowed in December as rising output backlog and input costs prevented firms from fulfilling new orders, according to the latest reading of the Nikkei Purchasing Managers’ Index (PMI).
The PMI for the Philippines registered a reading of 55.7 in December, the lowest in three months. This reading still indicates expansion in production activities but reflects the deceleration in new sales.
The December reading was lower than the 56.3 in November and 56.5 in October.
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.
More new orders were placed in manufacturing firms, reflecting strong client appetite, but the rate of expansion in new work was the slowest since March, IHS Markit said, the firm that compiles data for the PMI.
“Greater client demand led firms to increase their input buying and staff numbers. However, backlogged work depletion fell at the fastest rate on record despite increasing orders,” the firm said.
Purchasing managers surveyed reported hiring core employees to meet the growth in new orders. Firms, however, were still bogged down by the rising cost of inputs and impediments in the delivery of pre-production materials because of port congestions and customs bottlenecks.
“That said, while the manufacturing sector registered another expansion, there was a further loss of growth momentum at the end of the fourth quarter. Total new orders, input buying and employment all rose at slower rates,” said Bernard Aw, an economist at IHS Markit.
Aw said Philippine manufacturing firms remain hard-pressed to protect their profit margins because of rising cost inflation brought about by the weakness of the peso.
Companies have also been hiking output prices to cope with rising costs of pre-production materials. The series of prices hikes implemented, however, was “broadly stable” and can still be absorbed by the market.
“On the price front, Philippines manufacturing companies faced the sharpest rise in cost inflation in December as a combination of peso weakness and higher costs for raw materials lifted input prices. At the same time, hikes in selling prices were at broadly similar pace to recent months. If this continues, manufacturers’ profit margins may come under pressure in the coming months,” Aw said.