Manufacturing improves at fastest pace in 13 months

MANILA, Philippines — Philippine manufacturing conditions improved at the fastest pace in 13 months in February despite disruptions caused by the coronavirus disease 2019, according to the latest IHS Markit Philippines Manufacturing Purchasing Managers’ Index (PMI).

The headline PMI for manufacturing rose from 52.1 in January to 52.3 in February, the highest reading in 13 months.

This remains well-above expansionary territory as a reading 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).

While responding purchasing managers reported supply chain disruptions related to COVID-19, this was offset by the sustained rise in new orders and growth in output.

Workloads from foreign markets also rose at a faster pace in February, with the pick-up in exports the strongest since July 2018.

To cope with increased demand and output, manufacturing firms hired more workers in February.

Despite the gains in operating capacity and employment, work backlog fell at the slowest pace in almost four years because of the delay in the deliveries of raw materials from China.

Input delivery times lengthened to the greatest extent since December 2017 as stock shortages and power outages were noted.

These supply-side constraints caused purchasing of input stocks to grow at the slowest pace in over a year.

Despite seeing an increase in input costs in February, firms increased the prices of their goods at a slower pace to remain competitive in the market.

“February survey data signaled a continuation of respectful growth across the Philippines’ manufacturing sector. Firms are enjoying resilient demand conditions, both domestically and abroad, with anecdotal evidence suggesting that pipeline work remains sufficient to support the positive production trend in the near term,” said Joe Hayes, an economist at IHS Markit.

“COVID-19 poses a downside risk, but this seems to have been isolated to the supply-side so far as exports grew at the fastest rate in over one-and-a-half years,” he said.

Purchasing managers expect a further growth in output over the next 12 months in line with expansion plans and aggressive sales targets.

Hayes noted that Philippine firms should have sufficient buffers of inputs to withstand supply disruptions as input purchasing has been strong in recent months.

“Given that stocks of purchases have risen strongly in recent months, firms should have appropriate buffers in place to withstand delivery disruptions, but if they continue, production volumes could be adversely impacted,” he said.