Factories boost output in March but inflation 'a key concern'

MANILA, Philippines — Local manufacturing generally remained healthy in March despite a slight deceleration in output growth, but building price pressures are fast becoming a threat to the sector's delicate rebound.

A monthly survey of 400 companies showed the Philippines' purchasing managers' index (PMI), a measure of factory output, stood at 52.2 in March, a tad lower than 52.5 in the preceding month, IHS Markit, a British information provider, reported Monday.

That the PMI latest reading settled above the 50 benchmark separating growth and slump convinced IHS Markit that last month's performance was nevertless a "modest improvement" to close the first quarter. New orders posted a "marginal rise" in March, survey results showed, with demand from foreign clients taking a bigger hit due to renewed coronavirus lockdowns abroad.

"Promisingly, output volumes rose despite a moderation in new order growth," Shreeya Patel, economist at IHS Markit, said in a commentary. "Meanwhile, employment levels fell only marginally with anecdotal evidence suggesting that this was mostly voluntary, and not due to cost-cutting efforts at firms."

In an indication of improving factory health, IHS Markit noted a "strong" uptick in pre-production inventories, suggesting that companies are anticipating larger demand ahead. While a fragile recovery unfolds however, a new round ot tight lockdowns in Metro Manila, the center of business and commerce, since March 29 is posing a clear threat to consumer sentiment and factory operations.

That said, as manufacturers sped up production last month, job shedding also eased, helping firms clear backlogs with stable manpower.

But Patel said a "key concern" at the moment are higher input costs that, in turn, translated into higher selling prices just when pandemic-battered consumers are merely getting back on their feet. Adding to manufacturers' woes are  "supply chain pressures"  from freight delays that prolong delivery times and tighten supplies despite looser mobility curbs over the past 6 months.

"Material shortages were often blamed for the higher costs incurred by firms. A sustained increase in client demand, however, allowed some firms to partially pass on rising expenses," Patel said.

As it is, firms are ready for potential headwinds. Over the next 12 months, factories remained optimistic that output will continue their ascent, IHS Markit said.

"A strong first quarter places the sector in good stead for a return to industrial production growth in 2021, with our current forecast expecting a 7.1% expansion," Patel said.