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Philippines: Factory conditions improve in January
MANILA, Philippines — Manufacturing conditions strengthened for the second consecutive month in January as firms received more new orders and ramped up production to cope with demand, according to the latest IHS Markit Philippines Manufacturing Purchasing Managers’ Index (PMI).
The headline PMI rose to 52.1 in January from 51.7 in December, signalling a moderate improvement in operating conditions for local manufacturers. This was also the strongest reading since January 2019.
This remains well-above the expansionary territory as a reading of below 50 indicates contraction. The January reading for the Philippines bucks the contractionary reading for the whole of ASEAN during the month.
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).
Filipino manufacturers enjoyed a strong start to the year, as new orders grew faster, prompting firms to ramp up purchasing activity and increase production despite difficulties in the supply chain.
Responding firms, however, reported difficulties for suppliers because of the prevailing traffic issues which was aggravated by the eruption of Taal Volcano in Batangas.
As such, manufacturing lead times – the time between placement of order and the time it takes producers to deliver finished goods to customers – lengthened at the fastest pace in two yeaes.
Despite the upturn in output and new job orders, hiring activity remained subdued during the month with the number of jobs decreasing for the first time in seven months as many companies opted not to replace workers that had resigned.
Selling prices also rose at a faster pace in January in response to higher prices for raw materials, including oil and foodstuff.
Businesses were also more optimistic for the year head in January, the strongest in eight months as firms mentioned that their new projects will support greater activity.
They also mentioned the government’s infrastructure program as a key driver of potential growth as traffic issues will be reduced and supply chains will be improved.
“Whilst some businesses were notably affected by the Taal Volcano eruption in January, for the most part, the Philippines manufacturing sector continued to grow in January. Operating conditions improved at the joint- strongest pace for a year, with production increasing moderately amid stronger demand for goods,” said David Owen, economist at IHS Markit.
“However, one clear issue heightened by the eruption was road traffic, which has disrupted delivery times in each of the past six months. The government is seeking to address this with their “Build, Build, Build” project to place greater investment in road infrastructure. This is clearly an important project for manufacturers, with several pinning confidence around future output onto improved traffic conditions,” he added.
Region-wise, manufacturing conditions in the ASEAN remained within the contraction territory in January.
The headline ASEAN Manufacturing PMI rose from 49.7 in December to 49.8 in January, indicating a decline in business conditions in the manufacturing sector for the eight consecutive month.
“The ASEAN manufacturing sector remained mired in a downturn at the start of 2020, with the PMI signalling an eighth successive deterioration in operating conditions. That said, the rate of decline was the softest since the current downturn began in June 2019 and only marginal overall,” said Lewis Cooper, economist at IHS Markit.
Source: https://www.philstar.com/business/2020/02/04/1990102/factory-conditions-improve-january