PH factory output expands in Q3

Published October 1, 2021, 2:31 PM

by Chino S. Leyco

After a tough trading period in August, the local manufacturing sector concluded the third-quarter with a renewed overall expansion, the latest monthly survey of IHS Markit revealed on Friday, Oct. 1.

The IHS Markit Philippines Manufacturing Purchasing Managers’ Index (PMI) rose sharply from 46.4 in August to 50.9 in September, registering marginally above the 50 no-change threshold that separates expansion from contraction.

IHS Markit Philippines Manufacturing PMI

Although only marginal, the latest uptick was the strongest since March.

In September, production volumes fell, marking a six-month sequence of decline as firms continued to indicate that the remaining COVID-19 restrictions hampered production.

However, IHS Markit noted that the rate of contraction in production volumes slowed significantly compared with August. “Those companies registering higher output levels mentioned a resumption in factory operations.”

Similarly, new orders declined further, but at a softer pace last month. Citing “anecdotal evidence,” IHS Markit said there was a general reluctance to spend among clients amid ongoing movement restrictions.

Meanwhile, after falling sharply in the previous survey period, there was broad stagnation in new export sales during the month, IHS Markit said.

“A combination of weak consumer demand, ECQ [enhanced community quarantine] measures and voluntary resignation left manufacturing firms in the Philippines with lower staffing levels,” IHS Markit said, noting that head-counts fell in 20 of the last 21 months.

Despite the sustained period of job shedding, manufacturers were able to keep backlogs at bay last month, as has been the case since March 2016.

However, supply chains continued to be impacted by international COVID-19 restrictions during September. In addition to the pandemic, there were reports of port congestion, freight delays and container shortages, IHS Markit said.

“With the exception of the marked decline seen in the previous survey period, lead times were extended to the greatest degree since August 2020,” IHS Markit said.

In response to lengthy lead times, and in anticipation of greater client demand, IHS Markit said firms raised their stocks of purchases, which followed a decline in August. Post-production holdings fell for the second month in a row, but at only a marginal pace.

Turning to prices, raw material scarcity, container shortages, higher shipping fees and unfavorable exchange rate movements were among the key drivers of rising costs, according to panel members.

The rate of input price inflation moderated for the fifth month running, but was still quicker than the long-run series average, IHS Markit said.

Shreeya Patel, IHS Markit economist said manufactures welcomed the relaxation of some virus-related restrictions as a number of factories and businesses resumed their operations.


Patel, however, said the domestic and international demand environment remained challenging.

“Job shedding persisted, but anecdotal evidence highlighted that this was mostly voluntary. Nevertheless, backlogs fell solidly which could result in efforts to rein in spending and cut headcounts until demand for Filipino manufactured goods improves,” Patel said.

“Global shortages have also weighed on the sector with prices increasing sharply. Unfortunately, firms will have to endure the disruption as supply pressures show no signs of slowing,” she added.

On a positive note, Patel said the vaccination effort supported optimism, and with the government securing more doses, the Philippines looks committed to inoculating the population.

 
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