Supply shortages cripple local factory production in October

MANILA, Philippines — Local factories managed to temper a persistent drop in output in October, marking an improvement in manufacturing conditions that could have been stronger if not for material shortages that’s hampering production.

A monthly survey of around 400 companies showed the Philippines’ purchasing managers’ index (PMI), a measure of factory output, rose to 51.0 in October from 50.9 in the preceding month, British data firm IHS Markit reported Tuesday.

The latest reading settled above the 50-mark separating output growth from slump. While the month-on-month uptick was only marginal, it was nevertheless the strongest print since March, and above the average for 2021 so far.

But it was a mix of good and bad news last month. Survey results showed companies are seeing improved demand for their products, especially from clients onshore. But significant delays in delivery of supplies and raw material shortages due to pandemic-related curbs are crippling factory production, with output falling for the seventh month in a row in October.

“Some restrictions continued to ease, and the demand environment showed tentative signs of improvement,” Shreeya Patel, economist at Markit, said.

"However, the goods producing sector was yet again hit by delivery delays, material shortages and rising costs, which consequently inhibited output growth. Such pressures are likely to persist over the next few months,” Patel added.

Companies polled said new orders “stabilized” in October after six consecutive months of contraction, although demand from clients abroad “fell modestly” last month.

But that stability could become under threat as factories continued to grapple with supply bottlenecks. Manufacturers polled by Markit reported incurring high input costs because of tight supply and “extensive delays” in arrival of raw materials, especially for metals, packaging materials and oil.

Factories would typically pass on some of the high production costs to consumers by raising selling prices, which could hurt appetite for new orders. But in October, Markit said companies refrained from raising their charges to avoid derailing a still fragile recovery in demand.

On the labor front, Markit said job-shedding continued for the 20th straight month in October, although it eased from that seen in September. Companies said that while they had to let go some factory workers to reduce operating costs, resignations were “mostly voluntary” as more employees switch jobs to secure higher compensation elsewhere.

Nevertheless, Markit said business confidence improved to a three-month high at the start of the final quarter of the year. The optimism was underpinned by hopes of looser restrictions that could push up international and domestic demand in the year ahead.