Factory conditions improve modestly in August – survey

MANILA, Philippines — Manufacturing conditions improved at a modest pace in August as firms ramped up input purchasing and hiring during the month, according to the latest IHS Markit Philippines Manufacturing Purchasing Managers Index (PMI).

The headline PMI for Philippine manufacturing fell to 51.9 in August, down slightly from 52.1 in July but is still one of the highest readings recorded so far this year.

This indicates operating conditions for local goods producers is still in expansionary territory as a reading of below 50 indicates contraction.

The headline PMI provides a quick overview of the health of the manufacturing sector based on the weighted average of five indicators: new orders (30 percent weight), output (25 percent weight), job creation (20 percent), supplier delivery times (15 percent), and inventories (10 percent)

Data for the index was obtained from a sample pool of 400 manufacturers.

The market intelligence firm said output increased modestly during the month as growth in new orders softened.

IHS Markit economist David Owen said both output and new orders were weaker during the month as monsoon rains dampened both customer demand and affected efficiencies in the value chain.

Export demand was also weaker during the period as trading conditions in the region remain difficult because of the US-China trade war.

Despite this, however, firms managed to ramp up the purchasing of inputs stocks for the fourth consecutive month.

“Some firms noted a slowdown in customer demand due to monsoons during August. This also led to a slight deterioration in supply chain efficiency as lead times increased marginally. Nevertheless, firms were still able to increase stock levels,” said Owen.

Alongside greater input purchases, the domestic manufacturing PMI was supported by a modest increase in hiring during the month as firms needed more workers to reduce backlogs.

On the price front, manufacturers increased selling prices modestly during the month as input prices were higher compared with July but the rate of increase was the weakest in the 44-month series history.

Citing anecdotal evidence, higher prices of raw materials lead to greater cost burden for manufacturers.

Despite the modest improvement in manufacturing conditions in August,  majority of firms remain optimistic about output growth in the coming months.

Around 57 percent of firms surveyed for the PMI were hopeful about raising production in the coming year, anchoring expectations on higher sales and development of new products.

Only four percent of the respondents gave negative forecasts for growth in output.

“The economy is subsequently relying on strong domestic sales to stop growth from falling any further,” said Owen.