Factory growth slows, but leads ASEAN
BUSINESS was even better in November for Philippine factories which continued to outdo Southeast Asian peers, according to the latest Nikkei Philippines and ASEAN Manufacturing PMI reports that nevertheless showed that improvement slowed for the second straight month as manufacturers struggled to meet growing demand.
The country last month registered a seasonally adjusted purchasing managers’ index (PMI) of 56.3, a marginal decline from October’s 56.5, signaling improvement in operating conditions in the manufacturing industry, even though some companies reported “a lack of some materials” that disrupted production.
This is the second month in a row that improvement slowed for Philippine factories’ business conditions after September’s 57.5, a record high since the Philippine survey, conducted for Nikkei, Inc. by IHS Markit, began in January.
A PMI reading above 50 reflects improvement of business conditions, while a score below that threshold suggests deterioration.
Of seven members of the Association of Southeast Asian Nations (ASEAN) covered, only Vietnam and Myanmar joined the Philippines in expansion, logging an 18-month-high 54.0 and a sixmonthhigh 50.2, respectively, last month.
All the rest bared contractions: Indonesia with a two-month-high 49.7; Thailand with a record-low 48.2; Malaysia, a five-month-low 47.1 and Singapore with a sevenmonth-low 45.2.
“The Philippines retained the top position in the region, leading most of the countries by a wide margin,” the Nikkei ASEAN Manufacturing PMI report read,
even as it noted that Vietnam narrowed its gap with the Philippines.
The Nikkei Philippines Manufacturing PMI report said “[t]he recent trend of improving operating conditions across the Philippines’ manufacturing sector continued in November as strong client demand raised production and total new orders in the month,” noting that companies increased purchasing and staffing “to cope with greater demand.”
“Although the headline index slowed for a second time in a row, it remained above the series average” for the Philippines and “remained solid overall.”
The manufacturing PMI is a composite index of five sub-indices, with new orders having the biggest weight of 30%, followed by output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).
“November data showed another marked increase in output among Filipino manufacturers,” the Philippine report read, even as it noted that the pace of growth was the slowest in three months.
“Firms that reported a rise in production noted that greater customer demand and expansion of production capacity were key factors, while there was anecdotal evidence that a lack of some materials disrupted production volumes.”
Bernard Aw, an economist at IHS Markit which compiled the survey, traced the Philippines’ performance to sustained robust demand, saying: “The Philippines continued to enjoy strong growth in the manufacturing sector, underpinned by solid client demand.”
“Of particular note is the sharp upturn in new export sales. Overall, sustained demand led to greater new orders and busier production schedules. Firms had to continue expanding employment levels and input purchases to keep up with higher operational requirements,” he said in a press statement that accompanied the report.
“However, concerns over further depreciation of the peso remained, especially after a sharp weakening in the exchange rate in most of November. This will place more cost pressures on manufacturers that rely heavily on imported pre-production goods. At the same time, geopolitical tensions may threaten further growth in exports.”
Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines, said last month’s deceleration “might just be temporary as the pesos’s depreciation could further boost the country’s exports.”
But he flagged the observation that some factories have started to fall short of demand.
“It could probably mean that demand for manufactured goods remained strong in November, but production was not able to catch up with demand due to supply bottlenecks,” he said in a text message.