Factory activity declines slightly in May

MANILA, Philippines — Manufacturing activity in the country declined at a softer pace in May as subdued recovery was seen in output and new orders amid the easing of restrictions in areas outside of Metro Manila, according to the latest IHS Markit Philippines Manufacturing Purchasing Managers’ Index (PMI).

The headline PMI for manufacturing rose to 40.1 in May from a record low of 31.6 in April.

Despite the improvement in the reading, this still indicates a sharp deterioration as expansion is indicated by a reading of 50 and above.

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).

In May, growth in output and new orders remained stifled because of the enforcement of the severe quarantine in the National Capital Region (NCR), overall restrictions in mobility, and social distancing measures.

However, the easing of quarantine measures in some regions outside of the NCR during the month helped slow down the pace of contraction in production.

While Metro Manila remained under a modified strict quarantine in May, more regions were placed under community quarantines with fewer restrictions.

Even as improvements in production were seen, employment levels fell sharply for the fourth straight month.

As businesses continued to realize weak sales from both domestic and international markets, firms pared back on input purchasing, reducing inventory levels.

Input buying, however, improved slightly compared to

April as some manufacturers increased holdings in anticipation of the further easing of lockdown measures.

Even with still reduced input purchasing, deliveries were again delayed by travel restrictions and more frequent checkpoints. Lead times thus increased for the 10th month running.

On the price front, higher prices of raw materials stemming from global supply reductions led to a slight uptick in input costs, causing firms to raise prices for the first time in three months.

Despite this, the overall rise in the prices of products in the country remained subdued as firms still hoped to attract customers with low prices en route to the recovery in demand.

“The Philippines PMI signalled a softer decline in operating conditions across the manufacturing sector in May. The headline index picked up and was much higher than in April when the lockdown had its greatest impact on production,” said IHS Markit economist David Owen.

“Yet conditions have still not recovered, with restrictions in the capital and other cities broadly the same since April, in part leading to another sharp fall in new order volumes. Only the lifting of measures in rural areas helped to slow the decline. Employment continued to drop amid excess capacity, further hampering demand conditions.”

Looking forward, Philippine manufacturers had a more optimistic business outlook in May compared with the lowest point in March.

Companies were encouraged by a partial easing of lockdown measures and containment of the contagion.

Alongside the recovery in demand, firms are looking into the introduction of new products to drive sales.