Factory output clocks triple-digit growth in May, but it was purely mathematical

MANILA, Philippines — Local factories registered triple-digit output growth in May, with much of the lift coming from low base from last year.

What’s new

A monthly poll of selected industries showed the volume of production index (VoPI), a measure of manufacturing output, grew at a faster clip of 265% year-on-year in May compared to the 155.6% increase in April, the Philippine Statistics Authority reported Thursday.

The latest reading marked the second straight month triple-digit growth following 13 straight months of contraction that started in March last year, when strict pandemic restrictions were first imposed to arrest coronavirus spread. Those curbs were so tight that VoPI contracted by as much as 82% on-year in August last year.

Why this matters

Economic officials look into factory output data as it can be an indicator of the consumption-reliant economy’s health. If the economy is down, factories would cut production amid tepid demand for its products. Lower output could translate to weak revenues, which might force manufacturers to lay off workers to reduce operating costs.

What analysts say

Michael Ricafort, chief economist of the Rizal Commercial Banking Corp., said the latest VoPI data was boosted by base effects. This means that because the pandemic depressed last year’s figures, even a small gain this year would inevitably translate to strong annual readings.

That said, much of the superlative output growth in May was "mathematical" in nature, Ricafort explained, and it was more of a grim reminder of how the pandemic-induced recession smashed local factories last year than a reflection of a true recovery. “Quantitatively, any year-on-year growth in manufacturing becomes magnified amid measures to further re-open the economy from lockdowns,” he said in an e-mailed commentary.

Other figures

• 18 out of 22 industries went into expansion mode in May.
• Companies manufacturing coke and refined petroleum products (1,366.1%) were the winner for this month, while tobacco factories lost big, dropping 68.7% on-year in May.
• Average capacity of utilization, a measure for the sector’s capacity to produce, climbed to 66.1% in May from 64.0% in the previous month.