Factories return to growth mode for first time in 7 months

MANILA, Philippines — Local factories went back on expansion mode in September, finally gaining ground after three months of eased restrictions, although risks remain and the manufacturing sector is not out of the woods yet.

The purchasing managers’ index, a measure of factory output, rose to 50.1 last month from 47.3 in August, IHS Markit, an information provider, said in a report released on Thursday.

The report covers the result of a monthly survey of 400 domestic manufacturers and marked a return above the critical 50 line that separates expansion and deterioration in activity. Last month’s reading was also the highest since February or before the pandemic shuttered factories and prompted layoffs.

“The latest Philippines manufacturing data showed that operating conditions stabilized at the end of the third quarter,” Shreeya Patel, economist at IHS Markit, said.

Government data on manufacturing output for August will be released October 6, and for September on November 5.

While broadly, factory production still fell last month, new orders and a recovery in export sales helped counter prevailing weakness in manufacturing. Companies reported work schedules were slowly going back to normal.

That said, IHS Markit also noted of firms that were forced to downsize due partly to “cost-saving measures” of companies but also a result of resignations. However, firms have also reported full capacity operations with a decline in backlog orders, suggesting a dwindling workforce is unlikely to lower output.

Patel said the weak manufacturing climate highly stemmed from uncertainties surrounding pandemic restrictions, than lackluster demand. Based on the survey, goods producers have started “tentative increases” in output.

“Stronger business sentiment and efforts to rebuild stocks suggest panelists are preparing for an improvement in demand over the coming months, although optimism continues to rest on the development of the pandemic,” Patel said.

Still, manufacturers face hard times due in part to persistent shortages in raw materials as well as high transport costs as some firms continued to pay shuttle services to bring their employees to work. Public transport has not fully been restarted since getting shutdown in March.

Worse, factories got also no choice but to absorb additional costs. “Manufacturers had some difficulty passing on higher costs to clients due to tough market competition, however, with factory gate charges rising only marginally,” IHS Markit said.