Manufacturing output hits 7-month high

The Philippine manufacturing sector last month recorded the strongest expansion in seven-months despite substantial production delays due to raw material shortages and poor transportation conditions, according to the latest IHS Markit data.

The IHS Markit reported on Tuesday, Nov. 2, that the Philippines Manufacturing Purchasing Managers’ Index (PMI) rose from 50.9 in September, to 51.0 in October, registering above the 50.0 no-change threshold that separates expansion from contraction.

Although only marginal, the latest uptick was the strongest since March, and above the average for 2021 so far.

While there was a slight pick-up in growth across the manufacturing sector, IHS Markit, however, noted that October data registered a seventh successive monthly fall in output, with the rate of decline quickening from that seen in September.

“Firms mentioned that material shortages and virus-related restrictions drove the decline, though historically weak demand conditions were also cited,” IHS Markit said in a statement.

IHS Markit said goods producers continued to register a substantial deterioration in vendor performance as raw material shortages and poor transportation conditions led to extensive delays.

Lead times have now lengthened in each month since August 2019, with the latest deterioration among the sharpest in the series, IHS Markit said.

In line with supply-chain disruption, firms increased their input buying for the first time since July amid efforts to secure raw materials, but only at a fractional expansion pace.

Stocks of purchases, meanwhile, rose in October signaling back-to-back expansions. The increase softened slightly from that of in September, but was broadly in line with the long-run series average.

“Firms that raised their pre-production holdings mentioned that current pressures obtaining inputs, rising costs and expectations of greater demand encouraged stockpiling,” IHS Markit said.

At the same time, new order inflows stabilized after six consecutive months of contraction. International demand, meanwhile, fell modestly in October after stabilizing in the previous month.

Moreover, firms continued to scale back on their workforce numbers last month, with staffing levels falling for the twentieth consecutive month. The rate of decline eased from that seen in September, however.

Firms mentioned that whilst there were some cost-saving efforts, resignations were mostly voluntary.

On the price front, input prices soared anew in October. Higher cost burdens were commonly linked to material shortages, especially for metals, packaging materials and oil.

There were also reports of rising transportation and energy costs. The rate of cost inflation was the joint-steepest since March 2018, and the fourth most marked in the series history.

Subsequently, output charges increased at a quicker pace, though the rate of inflation was much softer than that seen for input prices. According to anecdotal evidence, some firms held back on raising their charges due to subdued demand conditions.

Lastly, business confidence improved to a three-month high at the start of the final quarter of the year.

“Optimism was underpinned by hopes of greater international and domestic demand in the year ahead. That said, sentiment was below the long-run series average,” IHS Markit said.