Factory conditions post modest improvement in December

MANILA, Philippines — Business conditions in the manufacturing sector improved at a modest pace in December 2019 as supply shortages and traffic issues restrained overall growth, according to the latest IHS Markit Manufacturing Purchasing Managers’ Index (PMI).

The report said headline PMI for the Philippines rose slightly to 51.7 in December from 51.4 in November as production went up at its softest pace since September 2017.

Growth was also seen for new orders as foreign sales rose. Alongside the growth in new orders, employment rose marginally.

IHS Markit said this indicates operating conditions for local goods producers are still in expansionary territory as a PMI reading above 50 indicates growth, while that below 50 indicates contraction.

The headline PMI provides a quick overview of the health of the manufacturing sector based on the weighted average of five indicators: new orders (30 percent weight), output (25 percent weight), job creation (20 percent), supplier delivery times (15 percent), and inventories (10 percent)

Data for the index was obtained from a sample pool of 400 manufacturers.

While stronger sales and new orders helped businesses expand operations, some firms said delays in input deliveries and difficulties in sourcing raw materials curtailed production.

Traffic issues were again cited as a key factor affecting supplier delivery times, alongside typhoons and congestion at the Manila port.

Despite the slower delivery of inputs, backlogs of work were managed and further decreased.

To cope with increased production, firms increased input buying although at a slower pace. Softer demand for inputs contributed to a slower growth in input price inflation.

The weak growth in December caused businesses to be less optimistic this year, with the degree of positivity one of the weakest in survey history.

“Most notably for manufacturers though are clear supply-side issues that are restricting output. Growing road and port congestion, particularly in Manila, remain a key feature of businesses’ concerns. The government has announced its Build Build Build program to address the problem which some firms are hopeful will reduce supply chain blockages,” said David Owen, economist at IHS Markit.

“Nevertheless, for the moment, production is being limited, and may remain so until these issues have been addressed,” he added.

The growth in the Philippine manufacturing sector bucked the deterioration trend in ASEAN in December 2019.

The headline manufacturing PMI for the region remained in contraction territory even as the reading rose to 49.8 in December from 49.2 in November. This marks the seventh consecutive month of deterioration in the health of the ASEAN manufacturing sector.

Output rose for the first time in six months amid an uptick in new orders but employment fell further.

Business sentiment across the region, however, remained positive for the coming year as businesses remain confident output will increase this year.

“2019’s overall performance has been subdued, with the average PMI reading (49.6) down from that seen in 2018 (50.6). In order for the ASEAN sector to begin next year on a stronger footing, a further improvement in total new business will be needed, as muted demand conditions remain a key concern,” said Lewis Cooper, IHS Markit economist.