By Luisa Maria Jacinta C. Jocson, Reporter
FACTORY ACTIVITY in the Philippines expanded for a tenth month in a row in November, although jobs fell for the first time since March, a survey by S&P Global showed on Thursday.
The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) inched up to 52.7 in November, from 52.6 in October, reflecting a “modest” pace of expansion.
“Growth across the Philippines manufacturing sector entered its tenth successive month, with modest expansions in operating conditions seen since September. The improvement across the sector primarily stemmed from greater demand conditions which drove higher sales and output,” Maryam Baluch, economist at S&P Global Market Intelligence, said in a report.
A PMI reading above 50 denotes improvement in operating conditions compared with the preceding month, while a reading below 50 signals deterioration.
The Philippines had the highest PMI reading among six Association of Southeast Asian Nations (ASEAN) economies in November, and exceeded the regional PMI average of 50.7.
Thailand had the second-highest PMI reading with 51.1, followed by Indonesia with 50.3. On the other hand, Malaysia (47.9), Vietnam (47.4) and Myanmar (44.6) all saw a contraction in November.
“Growth across the ASEAN manufacturing sector slowed again during November, with the latest PMI data signaling only a mild improvement in operating conditions. The slowdown reflected softer growth in output, while factory orders declined for the first time in 14 months,” S&P Global said.
JOBS DROPS&P Global said the latest data signaled a sustained improvement in operating conditions in the Philippine manufacturing sector.
“Growth stemmed from greater demand which resulted in quicker expansions in production levels and factory orders. Buying activity also increased at a faster pace during November,” it added, noting that manufacturing output and factory orders grew for the third consecutive month.
However, the seasonally adjusted employment index fell below the 50 neutral mark, indicating a drop in employment numbers for the first time since March.
“Firms also recorded a reduction in staffing numbers during the latest survey period, thereby ending the run of job creation that began in May. Resignations among employees was commonly cited as a reason for the fall in workforce numbers,” S&P Global said.
Sales were also affected by sluggish export conditions.
“Weak foreign client demand weighed on total new order growth across the sector which was primarily driven by domestic demand. Nonetheless, the downturn in export sales softened from October’s recent low,” S&P said.
Firms ramped up their purchases of inputs for a third month in a row, as they anticipated more orders in the next few months.
“The rate of expansion quickened from October to the fastest in six months, and signaled a solid increase overall. Growth in output and buying activity resulted in stocks of inputs increasing during November. Businesses increased their holdings in anticipation of greater demand,” S&P said.
Meanwhile, supply-chain disruptions were persistent during the month due to port congestion and material shortages, but the incidence of delays was at a three-month low.
Rising inflation pushed firms’ expenses higher.
“The rate of input price inflation gathered pace for the second month running, as higher energy costs were primarily blamed for the latest uptick in expenses. Similarly, output prices increased at a quicker rate during November as firms chose to pass costs on to clients,” S&P said.
The Bangko Sentral ng Pilipinas (BSP) expects inflation to range from 7.4% to 8.2% in November.
“While the manufacturing sector has shown strong gains during 2022, elevated price pressures pose an ongoing threat. Coupled with supply-chain issues, the peso weakening against the dollar adds further fragility,” Ms. Baluch said.
Ms. Baluch said rising interest rates and further monetary tightening may affect customer spending.
The BSP has raised rates by 300 basis points (bps) since May, bringing the benchmark rate to a 14-year high of 5%. It is widely expected to deliver another 50-bp rate increase at its December policy meeting.
Factory activity was impacted by “less upbeat” labor trends, as the decline in the seasonally adjusted labor index curbed potential growth, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.
“This shows that the labor market recovery is still ways before we get back to pre-COVID levels,” he said.
Mr. Mapa also said that domestic demand fueled growth as the bulk of manufacturing is related to food items consumed locally. However, flat foreign demand reflected the slowdown in global trade, he added.
S&P Global said manufacturing firms are “strongly optimistic” of output growth in the next 12 months.
“Moreover, the degree of confidence strengthened in the month. This was often linked to greater client activity, the economy opening up and more firms undertaking new projects,” it added.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an e-mail that increased production activities ahead of the holiday season would also boost manufacturing activity.
“Nevertheless, we are also sensing seasonal demand creeping into the main demand scene. I do expect the PMI to continue to be in expansion territory as we end the year,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a Viber message.
The headline PMI measures manufacturing conditions through the weighted average of five indices: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).