Factory activity weakens further in Dec.

Manufacturing activity worsened in the final month of last year as ongoing movement restrictions coupled with inclement weather dampened both demand and output, the latest monthly survey of IHS Markit revealed.

The Philippines Purchasing Managers' Index (PMI) posted its third straight month of decline at 49.2 in December from 49.9 percent in November. But the latest reading is still close to the 50-neutral mark that separates expansion from contraction.

“Ongoing lockdown restrictions and poor weather contributed to a decline in output volumes in December. Although modest, the rate of decline was among the fastest in the series history,” IHS Markit said.

Shreeya Patel, IHS Markit economist, said the COVID-19 pandemic and ongoing restrictions have hit manufacturers hard, impacting both demand and output, which remained historically weak.

New orders were broadly unchanged in December due to ongoing pandemic restrictions that weighed on local demand.

Exports, on the other hand, continued to expand, rising for the fourth month running. Greater demand for Filipino products in key export markets were reported by panellists.

“The downturn in production, and muted demand conditions led firms to cut workforce numbers in the final month of 2020. Job shedding persisted at a strong rate which firms linked to restructuring efforts and voluntary resignations,” IHS Market said.

Reflecting weaker demand conditions, IHS Market survey data also continued to show signs of spare capacity as backlogs of work fell further. The level of outstanding business has now fallen in each month since March 2016.

Higher input costs and softer new order inflows, likewise, led companies to reduce purchasing activity in December. In turn, stocks of both raw materials and finished goods were depleted.

Meanwhile, input prices rose for the eighth consecutive month as supply constraints were extended into the final month of 2020.

“Panellists mentioned that difficulties obtaining raw materials were caused by adverse weather conditions and pandemic restrictions. Notably, the rate of inflation was the fastest since November 2018,” IHS Markit said.

Subsequently, selling prices rose as Filipino manufacturers chose to pass on part of the hike in costs to customers.

“The current sequence of increase in factory-gate charges that began in May was extended further in December, with the latest rise the joint-fastest in the aforementioned sequence,” IHS Markit noted.