PH manufacturing output posts solid rise in June

Published July 1, 2022, 11:45 AM

by Bernie Cahiles-Magkilat

The Philippine factory output showed solid rise in June versus May, the second-fastest pace since November 2018, indicating solid improvement in operating conditions across manufacturing firms in the country, despite business optimism that slipped to its lowest since April 2020, according to S&P Global.

S&P Global said the Philippines Purchasing Managers’ Index (PMI), a measure of the prevailing direction of economic trends in manufacturing, slipped marginally to 53.8 percent in June from 54.1 in May. This means that factory output and total new orders expanded at a quicker rate than seen in May, thereby continuing the current respective sequences of expansion to five months.

“Despite a loss in growth momentum for the second month running, operating conditions have now improved for five successive months, with the headline PMI figure signalling solid overall growth in the manufacturing sector,” S&P Global said.

Anecdotal evidence noted higher customer demand prompted greater output in June, S&P said.

Driving the rise in production are factory orders received at goods producers also increased at an accelerated pace in June. That said, export volumes contracted again, as has been seen in each month since March. Weak international client demand and supply issues reportedly led to diminished volumes of new work from abroad. With activity picking up at manufacturing firms, employment levels rose for the second successive month in June.

While the rate of job creation was only mild and eased from May, the rise in workforce numbers was linked to greater production requirements and increased new orders.

On the other hand, June data also signalled a softer increase in manufacturing firms’ input procurement. Only a modest rise in the quantity of input purchases was registered in the latest survey period, as the respective seasonally adjusted index posted the closest to the 50.0 no-change mark in the current sequence of expansion that began in February 2022.

Similarly, both pre- and post-production inventories increased at a softer pace compared to that seen in May but remained modest overall as firms noted rising business requirements.

On the price front, average cost burdens rose further as companies continued to register higher energy and raw material prices. While the rate of inflation eased for the third month running, it remained sharp overall. With average cost burdens rising, firms continued to pass greater input prices on to their customers. Output prices also markedly, albeit at a softer pace compared to May. However, concerns regarding the outlook for output over the coming year were apparent. Rising fuel prices and inflationary pressures weighed on business expectations. Manufacturing firms in the Philippines registered the lowest level of optimism since April 2020. That said, companies remained optimistic overall regarding any output expansion in the coming 12 months. Confidence was pinned on hopes of improving economic conditions as the impacts of COVID-19 continued to diminish.

Maryam Baluch, economist at S&P Global Market Intelligence, commented that “Domestic demand remained strong as the lifting of pandemic restrictions allowed customer activity to pick-up. In contrast, foreign client demand contracted for the fourth month running, and at a sharper pace.”

That said, Baluch said, businesses were more hesitant in their output expectations for the year ahead as downside risks to growth remain. The degree of confidence hit a 26-month low as firms highlighted concerns surrounding supply-side challenges, persistent inflation, energy price increases and peripheral global uncertainties that continue to spillover and restrain the Filipino manufacturing sector.”

The S&P Global Philippines Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. Data collection began in January 2016.