Factory conditions worsen

MANILA, Philippines — Manufacturing conditions deteriorated anew in October as a renewed drop in consumer demand affected factory production, global research firm IHS Markit said.

The Philippine Manufacturing Purchasing Managers’ Index (PMI) returned to negative territory in October with a reading of 48.5, after settling in the moderately expansionary mark of 50.1 in September.

A reading above 50 indicates expansion, while a reading below 50 signifies 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), job creation (20 percent), supplier delivery times (15 percent) and inventories (10 percent).

Firms saw a decline in new orders again in October amid business closures and weakening customer demand, causing output to likewise contract.

Respondents still attributed the subdued demand to the economic fallout from the pandemic, but noted that orders from abroad increased for a second month running.

Job losses also extended for the eighth consecutive month in October as voluntary resignations rose.

Purchasing activity also weakened as firms reduced their stores of inputs in October.

Supply chain issues were also evident as seen in the lengthening of delivery times, which respondents attributed to supply shortages and transportation restrictions.

Prices of products rose marginally in October as firms passed on some of the cost burdens to consumers. Some firms, however, slashed prices as discounting strategies were found to stimulate sales.

IHS Markit economist Shreeya Patel said the still elevated number of COVID-19 cases in the country is preventing more businesses from reopening and raising operating capacity.

“The reopening of businesses will support a pickup in the economy, although infection rates in the Philippines remain high compared to regional peers. Until virus cases are tamed domestically and globally, we are likely to see a protracted recovery in manufacturing production,” said Patel.

Despite the renewed deterioration in manufacturing conditions in the country, business confidence for the next 12 months remained positive, with some firms mentioning plans of expansion and launching new products.

This degree of confidence, however, was below the average in series history as some firms continue to expect the pandemic to have a long-term impact on production.

“For now, firms remain optimistic that production will improve over the coming year, however, it remains to be seen whether the latest contraction was temporary,” said Patel.

The downturn in output  of the Philippine manufacturing  sector was among the steepest in the world in the first nine months of the year, IHS Markit said earlier.

The market intelligence firm said that among the 31 countries monitored for manufacturing conditions from January to September this year, six of the fastest contracting manufacturing sectors are in Asia.

“The steepest downturns so far this year have been recorded in Mexico, Indonesia, the Philippines and Japan, followed by South Korea and Vietnam,” said Chris Williamson, chief business economist at IHS Markit.

“That means five of the six fastest-contracting manufacturing economies have been located in Asia, causing the region as a whole to have markedly underperformed (compared to) the rest of the world so far, if China is excluded.”

This week, manufacturing PMIs for October will be released, which  will give a clearer picture of recovery of factory output worldwide.

As hard economic data takes time, PMIs are now being increasingly used ,along with other high-frequency indicators such as mobility, to monitor the pace of economic recovery amid the pandemic.