By Beatrice M. Laforga, September 3 2019; Business World

Image Credit to Business World

BUSINESS CONDITIONS for factories in the Philippines improved “at a moderate rate” in August, with firms raising production “only modestly as new order growth fell from July levels,” according to results of a monthly survey IHS Markit conducts for Nikkei, Inc. that were released on Monday.

The IHS Markit Philippines Manufacturing PMI (purchasing managers’ index) logged 51.9 in August — “signalling a modest improvement in the health of the Filipino manufacturing sector,” according to a news release — from July’s 52.1.

While not all Southeast Asian PMIs for August were immediately available, the Philippine result compared to Myanmar’s 52 (down from 52.9 in July), as well as Thailand’s 50 (from July’s 50.3) and Indonesia’s 49 (also down from 49.6 in July). Still awaited are results for Malaysia, Singapore and Vietnam, which has been outdoing the Philippines since March.

PMI is the weighted average of five indices, namely: new orders that has a 30% weight, output with 25%, employment with 20%, suppliers’ delivery times with 15% and stocks of purchases with 10%. PMI readings above 50 signal improvement in operating conditions from the preceding month, while those below that point denote means deterioration. The Philippine survey is based on responses to monthly questionnaires sent to purchasing managers of about 400 manufacturers.

The PMI is not comparable to the Philippine Statistics Authority’s Monthly Integrated Survey of Selected Industries (MISSI), which is based on year-on-year changes in volume and value of production. The latest MISSI showed factory output — as measured by the volume of production index — contracting by 10.5% year-on-year in June versus the revised 9.9% decline in May and the 9.8% growth in June 2018. Factory output decline averaged 9.6% last semester compared to the 13.5% growth average in 2018’s first half.

The press release on the IHS Markit Philippines Manufacturing PMI said that “[o]utput did increase, but only modestly and at the slowest pace for four months… widely linked by panellists to a softening in the rate of new order growth.”

The statement also noted that “[i]ncrease in new business was the least marked in 13 months” and “[w]hile sales remained strong overall, some firms were impacted by monsoons as well as a drop in demand from foreign clients.”

At the same time, last month saw greater requirement for workers, with companies hiring “at the quickest rate since November 2017”, though the increase was still “modest”.

“Latest PMI figures showed that growth in the Philippines manufacturing sector was largely similar in both July and August. While sales growth was down from the previous month, greater hiring activity meant that the headline reading dropped only slightly to 51.9 from 52.1,” the statement quoted IHS Markit economist David Owen as saying.

“Some firms noted a slowdown in customer demand due to monsoons during August. This also led to a slight deterioration in supply chain efficiency as lead times increased marginally. Nevertheless, firms were still able to increase stock levels,” he added.

“One note of caution from the data was another moderate fall in export demand. New orders from abroad have now fallen in 10 out of the last 12 months, as trading conditions in the region remain difficult due to the US-China trade war,” Mr. Owen explained, as Reuters reported that the United States began imposing 15% tariffs on various Chinese goods on Sunday — including footwear, smart watches and flat-panel televisions — as China put new duties on US crude in the latest escalation to their trade row.

“The economy is subsequently relying on strong domestic sales to stop growth from falling any further.”

Last month’s survey also showed input prices rising at a sharper pace than in July, due to higher raw material prices, and selling charges increasing “modestly” from July.

Finally, expectations of output growth “remained positive overall”, with 57% of respondents “hopeful of raising production in the coming year” and just four percent “giving negative forecasts for growth.” — with Beatrice M. Laforga