Factory output picks up in October

MANILA, Philippines — The country’s manufacturing sector expanded modestly in October, hitting a seven-month high, as mobility restrictions remain loose amid the continued decline in COVID-19 cases.

Market intelligence firm IHS Markit said the Philippine headline purchasing managers’ index (PMI) marginally picked up to 51 in October from 50.9 in September.

The October headline index registered above the neutral 50 mark that separates expansion from contraction.

The latest reading is also the strongest uptick in seven months or since March 2021, and is over the average for the whole year so far.

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’s latest reading is still a reflection of a minimal, but continued recovery of manufacturing conditions in the country.

The government continues to relax mobility measures as it downgraded the alert level in Metro Manila and neighboring provinces last month.

“October PMI data signaled a slight pickup in growth across the Philippine manufacturing sector. Some restrictions continued to ease and the demand environment showed tentative signs of improvement, with new orders stabilizing after six months of decline,” IHS Markit economist Shreeya Patel said.

However, production volumes fell for the seventh month in a row, driven by material shortages and virus-related restrictions, though historically weak demand conditions were also noted.

Production levels and new orders in the domestic front have started to stabilize after six straight months of decline while those from the overseas market fell modestly.

IHS Markit emphasized that firms are still on a scale-back mode in terms of hiring, with staffing levels falling for the 20th month now, although the rate of decline is slower than the previous month.

Further, pressure remained on the supply chain due to raw material shortages and poor transportation conditions that lengthened delivery times from suppliers.

Lead times were extended each month since August 2019, with the latest deterioration among the sharpest in the time series.

Firms raised their stocks of purchases as current pressures obtaining inputs, rising costs and expectations of greater demand encouraged stockpiling.

Delays and material shortages have led to the fastest rise in input costs since March 2018. This prompted firms to raise the prices of their products to pass on some of the cost burdens to customers, albeit at a modest pace.

“Such pressures are likely to persist over the next few months, but a key concern comes from firms only partly able to pass on higher costs given the relatively weak demand environment,” Patel said.

Overall, business confidence picked up to a three-month high amid hopes of greater international and domestic demand in the year ahead.

Although business sentiment ticked higher, sentiment was below its long-run average suggesting concerns surrounding supply persisted.

“After contracting sharply in 2020, the manufacturing sector is expected to grow by 19.1 percent this year. Firms hope that demand conditions in both domestic and international markets improve, with looser restrictions likely to support greater customer demand,” Patel said.