Manufacturing returns to expansion mode

MANILA, Philippines — The country’s manufacturing sector went back into growth mode in September, hitting a six-month high, as mobility restrictions were slowly eased during the month.

Market intelligence firm IHS Markit said the country’s headline purchasing managers’ index (PMI) rose sharply to 50.9 in September from 46.4 in August.

The September headline index was marginally above the neutral 50 mark that separates expansion from contraction.

The latest reading is the strongest uptick in six months or since March 2021.

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), job creation (20 percent), supplier delivery times (15 percent) and inventories (10 percent).

IHS Markit’s latest reading followed a severe contraction in August amid the impact of the third round of the enhanced community quarantine in Metro Manila and nearby economic hubs that led to factory and business closures.

In September, the government gradually eased restrictions and eventually piloted granular lockdowns with an alert level system in Metro Manila.

“After a tough trading period in August, manufacturers in the Philippines welcomed the relaxation of some virus-related restrictions. A number of factories and businesses resumed their operations. However, the domestic and international demand environment remained challenging,” IHS Markit economist Shreeya Patel said.

Output and new orders declined further, although the rates of decrease were not as severe, amid the still general reluctance to spend among clients due to ongoing restrictions.

Production volumes fell for the sixth month in a row while weak consumer demand, lockdown measures and voluntary resignations left manufacturing firms in the country with lower staffing levels.

“Job shedding persisted, but this was mostly voluntary. Backlogs fell solidly, which could result in efforts to rein in spending and cut head counts until demand for Filipino manufactured goods improves,” Patel said.

Production levels and new orders on the domestic front are still on a decline, while those from overseas markets remained in contraction.

Further, pressure remained on the supply chain due to COVID restrictions globally, port congestions, freight delays and container shortages that lengthened delivery times from suppliers.

With the exception of the marked decline seen in the previous survey period, lead times were extended to the greatest degree since August 2020.

Firms raised their stocks of purchases in response to lengthy lead times and in anticipation of greater client demand. Post-production inventory also fell, although moderately.

Material and container shortages, higher shipping fees and unfavorable exchange rates continue to result in higher input prices, with costs rising for 17 months now.

This prompted firms to raise the prices of their products to pass on some of the cost burdens to customers.

“Global shortages have also weighed on the sector, with prices increasing sharply. Unfortunately, firms will have to endure the disruption as supply pressures show no signs of slowing,” Patel said.

Overall sentiment was widely upbeat and saw an improvement from August as vaccinations were ramped up. Still, firms remain wary of long-term impacts of the pandemic, with optimism historically subdued.

“On a positive note, the vaccination effort supported optimism, and with the government securing more doses, the Philippines looks committed to inoculating the population,” Patel said.