Factory output hits 3-year high

MANILA, Philippines — The country’s manufacturing sector rebounded strongly, hitting a three-year high in February as COVID-19 cases dropped after the short Omicron surge.

Market intelligence firm IHS Markit said the Philippines’ headline purchasing managers’ index (PMI) rose to 52.8 in February from 50 in January.

The latest reading registered above the threshold that separates expansion from contraction.

The February figure was also the strongest in three years or since December 2018.

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).

IHS Markit said the February PMI indicated a return to growth for the manufacturing sector with output, new orders and purchasing expanding solidly.

“While the relaxation of restrictions was no doubt the latest driver of growth, there were also tentative signs of improvements in material availability as delivery times lengthened to the least marked extent for a year,” IHS Markit economist Shreeya Patel said.

Metro Manila and most provinces were downgraded to Alert Level 2 for the whole of February as COVID cases fell sharply, proving that the Omicron surge was temporary and did not significantly impact the economy.

Further upticks in the PMI can be expected as the capital and other areas shifted to Alert Level 1 or the so-called “new normal” starting in March.

The PMI showed that growth was centered on expansions in both output and new orders, with the rate of increase in the former the quickest in over three years.

Manufacturing firms attributed this to the relaxation in pandemic-restrictions and wider material availability that prompted the increase in production as the domestic demand environment also improved.

Exports also rose last month, bringing an end to four successive months of contraction.

On the other hand, firms continued to reduce their workforces as staffing levels fell for two straight years, with the latest reduction the quickest in five months.

As demand improves, the PMI showed that firms raised their stocks of pre-production inventories amid efforts to cater to better demand conditions. Post-production inventories also rose sharply.

IHS Markit said that supply chain issues persisted last month although at a much weaker pace.

Port congestion and transportation bottlenecks remained, but firms saw improvements in material availability.

Further, higher energy, raw material, fuel and transportation costs drove up expenses in February.

This prompted firms to raise anew the prices of their products to pass on some of the cost burdens to customers, rising at its quickest pace in 22 months as they sought to protect profit margins.

Moving forward, firms had a relatively more positive sentiment last month amid hopes of a return to normality, greater demand, and favorable presidential election outcomes.

Meanwhile, Trade Secretary Ramon Lopez said the growth in the country’s manufacturing output was due to the continued easing of restrictions.

“The climb in the country’s PMI in February is a result of the consistent and sustained efforts, together with the continued cooperation of our countrymen, in working towards the recovery of our economy. Last month’s performance is an indication of the sector’s solid growth in output, new orders, and exports thanks to easing of mobility curbs as the Omicron surge fades,” he said.

Even before the shift to Alert Level 2, he said the government was already allowing 100 percent operating capacity for all manufacturing, and all exports activities.

“Thus, with the recent de-escalation of Metro Manila and other provinces to Alert Level 1, we expect March PMI to remain above 50 on sustained manufacturing growth recovery, underpinned by economic reopening and greater mobility,” Lopez said.