Fading base effects dim factory output in May

MANILA, Philippines — Dissipating base effects dampened factory output in May, worsening the impact of global supply chain issues.

What’s new

Results of PSA's monthly survey of selected industries revealed the volume of production index (VoPI), a measure of manufacturing output, inched up 1.9% year-on-year in May, lower compared to the 1.2% expansion recorded in April.

This, however, was the 12th straight month that VoPI expanded.

Why this matters

Economic managers look to manufacturing output as a barometer of economic welfare as it can be an indicator of demand situation in the country, where consumer spending is a major growth driver.

When factories churn more finished products, this could be a sign of strong consumer demand. When demand is robust, manufacturers tend to hire more workers to avoid backlogs which, in turn, generates employment for the country.

What an analyst says

For Domini Velasquez, chief economist at China Banking Corp., base effects play a huge part in churning out a favourable outturn.

"..This is largely due to base effects given May 2021's VoPI growth was 267.2%. Looking at levels, May's VoPI index at 94.0 was much better from 88.4," she in a Viber message.

Velasquez observed that the impact of supply chain issues, partly because of China's zero-tolerance on Covid infection, faded in June.

"Moving forward, we expect MISSI to weaken as production costs increase with higher oil prices. Net sales of manufactured goods will also be hit by weaker consumer appetite as higher inflation reduces the peso's purchasing power," she added.

Other figures

• Fourteen industries expanded in May, led by the manufacture of machinery and equipment except electrical which rose at a pace of 50.7% year-on-year.
• Eight industries led by the manufacture of electrical equipment saw output sag in the same month.
• Almost one-fourth of factories were operating at full capacity as average capacity utilization crept up 70.7% from 69.4% in April.