Factory output bounces back in June, bucks Asean decline

MANILA, Philippines — Philippine manufacturing activity registered a subdued recovery in June, bucking the contraction in factory output in the ASEAN region, according to the latest IHS Markit Manufacturing Purchasing Managers’ Indices (PMI).

Local goods producers in the Philippines reported an expansion in new orders amid a soft increase in new orders. Export sales, meanwhile fell to a record low.

The headline IHS Markit Philippines Manufacturing PMI rose slightly to 51.3 in June from 51.2 in May.

The market intelligence firm said this still signalled a “still subdued picture” for the manufacturing sector.

Despite the weak improvement, this still puts the domestic manufacturing industry in expansionary mode as a reading of below 50 indicates contraction.

Despite a soft increase in output and new orders, firms have stopped replacing workers who quit their jobs as employment in manufacturing firms declined in June.

During the month, firms stepped up input purchasing at the fastest pace in seven months to service the increase in demand and to take advantage of better conditions in Manila’s port to increase inventories of input stocks.

Manufacturers reported a minimal increase in input costs at the end of the second quarter primarily because of a weak peso and increased taxes.

As such, firms raised the prices of their products anew but only modestly.

IHS Markit economist David Owen said despite the growth in output and new orders, Philippine firms appeared to have focused on stockbuilding in June as purchasing managers hinted of risks of supply shortages.

“Altogether this suggests that there will be less incentive to raise output in the months ahead, unless firms see a strong inflow of new orders. Many companies may switch to using up their inventories, in which case activity could dry up,” he said.

“Firms also face notable labor market problems, as resignations were once again mentioned by a number of panelists,” he added.

On the upside, Owen noted that the supply chain has improved with the easing of port congestion, helping ease short-term risks to businesses.

The Philippines skirted the contraction in the ASEAN manufacturing sector in June.

The headline manufacturing PMI for ASEAN fell to 49.7 in June from 50.6 in May as growth in output and new orders rose marginally and employment falls at the quickest pace in 20 months.

Owen said the contraction in the region’s manufacturing sector reflects the global trend.

“The run of weak growth at ASEAN firms ended in June, as latest data signalled a slight deterioration in operating conditions spurred by weak demand and falling job numbers. It was the third decline seen so far this year, reflective of a struggling global manufacturing industry,” he said.