Lockdown easing has local factories humming again in June

MANILA, Philippines — Local factories are humming again in June following two consecutive months of output slump, although the recovery was only “marginal” as existing pandemic lockdowns continue to be a big hurdle for manufacturers.

A monthly survey of around 400 companies showed the Philippines’ Purchasing Managers’ Index (PMI), a measure of factory output, rose to 50.8 in June from 49.9 in May, British information provider IHS Markit reported Thursday.

That the latest PMI reading settled above the 50-mark separating growth from contraction convinced IHS Markit that factories are finally regaining momentum lost when Metro Manila and four nearby areas briefly returned to strict lockdowns at the onset of second quarter following a deadly resurgence of infections.

Curbs have been eased since mid-May, but lingering restrictions made the June rebound only “partial,” Shreeya Patel, economist at IHS Markit, said in a commentary. “Declines across output, new orders and employment eased while exports rose sharply during the month,” Patel said.

Breaking down the report, production levels continued to contract last month as demand remains subdued, especially at home, due to stubborn lockdowns. But the collapse was milder compared to the previous month and was “only modest.”

On the flip side, improving international demand for Filipino products helped offset anemic sales onshore, with orders from abroad growing for the second straight month in June at a rate stronger than historical average. “Expectations of greater production levels were reflected in firms adding to their stock levels, amid hopes of a stronger third quarter,” Patel said.

But it was not all good news in June. With decline in output still persisting, IHS Markit said companies were still hesitant about hiring more workers to operate machines and ramp up production. In fact, job shedding continued last month as factories try to cut costs while some employees decided to voluntarily quit, but the decline was the softest in three months.

Manufacturers also faced persistent delays in delivery of supplies, no thanks to stock shortages and port congestions. To prevent future delays, IHS Markit said companies started beefing up their inventories.

At the same time, higher costs of transportation and raw materials resulted in rising input prices in June, which factories then passed on to consumers through higher selling prices to protect profitability. IHS Markit said outprice inflation last month accelerated to its briskest pace in over two years.

Looking ahead, factories remained optimistic about their overall prospects for higher production levels in the next 12 months.

“With the vaccination program still in the early stages, controlling the spread of the pandemic remains principal to preventing another series of tightening restrictions,” Patel said.

“Firms in the meantime will hope issues surrounding the supply of materials are resolved,” she added.