Factory output recovers in August despite rising inflation

MANILA, Philippines — Philippine factory output recovered in August as production stabilized while employment in firms skyrocketed, although inflation concerns remain at bay. 

A survey of around 400 manufacturers in the country found that the Philippines’ Purchasing Managers’ Index (PMI), a gauge of manufacturing output, rebounded to 51.2 in August from 50.8 in July, S&P Global said in a report on Thursday. 

The latest reading settled above the 50-benchmark separating growth from contraction. Despite the recovery, S&P explained that the uptick in the August PMI “was weaker than the series average.” 

“Headwinds heighten concerns that inflationary pressures, supply chain disruptions, the weakening of the peso and a high interest rate environment, with further hikes expected, will squeeze demand as clients’ disposable income will take a hit,” Maryam Baluch, economist at S&P Global Market Intelligence, said in a commentary.

However, it’s hard to ignore the recovery obtained from larger employment numbers, as firms boosted their workforce in anticipation of busier production in the coming months. This led to the fastest rate of job creation since June 2017, S&P reckoned. 

Factory output stabilized since contracting in July.

Jun Neri, lead economist at Bank of the Philippine Islands, noted some manufacturing subsectors showed relative resilience against persisting headwinds. 

“Manufacturing subsectors that cater to the domestic markets (e.g. food processing, construction materials, etc.) seems pretty resilient possibly underpinning the sector's resilience despite weakening external customers from China, Europe and the US which are all slowing down,” he said in a Viber message.

“This will mean employment prospects in the sector will continue to recover and accommodate more workers,” Neri added. 

Dampening the sector’s growth momentum was weakening client demand. Input purchases were reduced for the first time this year while new export orders skidded at the briskest pace since January. The latter weighed heavily on total sales.