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Philippines: Factory conditions weaken in August
MANILA, Philippines — Manufacturing conditions in the country deteriorated further in August as the reimposition of a strict two-week lockdown stalled factory operations.
The headline IHS Markit Philippines Manufacturing Purchasing Managers’ Index (PMI) fell anew to 47.3 in August from 48.4 in July.
This reading, however, was still above the record low PMI of 31.6 in April.
A PMI of 50 and above indicates an improvement in manufacturing conditions while that below 50 signifies a 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), job creation (20 percent), supplier delivery times (15 percent) and inventories (10 percent).
Domestic manufacturing conditions declined in July after recovering in June, bucking expectations that output and demand will recover swiftly as community quarantine restrictions were loosened beginning June 1.
As local manufacturers continued to struggle with weak domestic and overseas demand for goods, Metro Manila and the provinces of Bulacan, Cavite, Laguna and Rizal were placed under modified enhanced community quarantine (MECQ) anew from Aug. 4 to 18, forcing many manufacturers that had just begun to ramp up operations to downscale again because of mobility restrictions.
In August, output and new orders registered the fastest declines since May.
Job cuts also continued for the sixth month running as companies let go of more workers or stopped hiring amid the lockdown.
Inventories also fell as companies reduced holdings because of weak demand.
Delivery times also lengthened again during the month as restrictions made it difficult for firms to acquire inputs on time.
On the price front, cost of inputs rose at the sharpest pace since February 2019, causing some manufacturers to pass on higher costs to consumers.
IHS Markit said this was mainly driven by supplier shortages and increased import costs.
Overall, however, the mark-up was modest and some firms continued to offer discounts to stimulate sales.
“The recent steep increase in new COVID-19 cases led the government to impose stricter quarantine measures in Manila and the surrounding provinces in August. The new measures meant that certain groups were unable to travel and some businesses were forced to reduce operating capacity,” said David Owen, an economist at IHS Markit.
“Businesses remain less confident than normal of an increase in output over the coming year, reflecting the uncertainty of the path of the pandemic and lockdown measures.”
Region-wise, the headline manufacturing PMI for ASEAN remained in contraction territory in August although the level of contraction was slower at 49.0 compared with 46.5 in July.
This was so far the weakest pace of deterioration in ASEAN manufacturing conditions in six months and indicates a move toward stabilization.
In August, ASEAN manufacturers saw production stabilizing and new orders falling at a slower rate.
Firms still pared back on input purchasing and held lower levels of inventory.
“The ASEAN manufacturing sector moved closer to stabilization during August, as the headline figure gained a further two-and-a-half points to signal a further easing of the downturn. Factory production stabilized following six consecutive monthly declines, whilst the level of total new business fell at the softest rate since the current sequence of contraction began in March,” said Lewis Cooper, another IHS Markit economist.
“Nonetheless, we are yet to see any concrete indications that the sector is recovering. Factories need to see a marked improvement in client demand and production volumes before the recovery can get underway.”
Source: https://www.philstar.com/business/2020/09/02/2039395/factory-conditions-weaken-august