Factory output soars in September as demand improves, but inflation still a problem

MANILA, Philippines — Philippine factory output grew for the eighth straight month in September on the back of higher demand, although firms remained concerned with inflation’s impact on their operations. 

A survey of around 400 manufacturers in the country found that the Philippines’ Purchasing Managers’ Index (PMI), a gauge of manufacturing output, grew to 52.9 in September from 51.2 in August, S&P Global said in a report on Monday.

The latest reading settled above the 50-benchmark separating growth from contraction. S&P explained that the uptick in the September PMI was “modest overall,” although it was the quickest in three months and proved faster than the series average of 51.8. 

“Growth across the Filipino manufacturing sector quickened in September according to the latest PMI data. Firms noted that an increase in customer demand allowed production levels and factory orders to grow for the first time since June,” said Maryam Baluch, economist at S&P Global Market Intelligence, said in a commentary.

Baluch noted that “upward pressure on prices eased during the latest survey period, as rates of both input cost and output price inflation softened on the month”. However, companies are worried that inflation remains stubbornly high amid an “unfavorable” exchange rate and persisting supply-chain disruptions.

The Bangko Sentral ng Pilipinas said in August that inflation could hit its peak by September or October. 

Local factories proved more confident in September, as sentiment reached its “strongest in just over four years,” according to S&P Global. 

Domini Velasquez, chief economist at China Banking Corp, welcomed last month’s figures. As it is, S&P Global cited anecdotal evidence that recovering demand contributed to the boost in factory orders. 

“Higher PMI in September is welcome news as the industry quickened, despite expectations of higher inflation, possibly in October,” she said in a Viber message.

Bright spots abound in this latest PMI, as firms expanded their workforce, although improving demand amid supply-chain disruptions increased backlog for factories, which S&P Global noted was a first since February 2016. 

“Companies' ability to pass on higher prices to consumers is helping the industry expand. However, we might see a slow down in the coming months as higher prices dampen demand,” Velasquez added. 

That said, demand from foreign clients further declined in September, continuing its contraction in the past seven months. The global economy is anticipating a slowdown in the coming months as central banks everywhere raced to tame inflation by raising their interest rates. 

“Moving forward, PMI will likely trend nearer the 50 figure due to weaker demand both domestically and from abroad (as external headwinds increase),” Velasquez said.