Factory growth momentum weakest so far

MANUFACTURERS in the Philippines bared continued expansion as the year began, but growth momentum was the weakest on record in the face of higher input costs and a smaller increase in client orders, according to a monthly survey that still showed respondents’ confidence “remained high.”

The seasonally adjusted headline Nikkei Philippines Manufacturing PMI registered the fourth monthly slowdown at 52.7 in January from December’s 55.7, according to the Purchasing Managers Index (PMI) results e-mailed to journalists on Wednesday.

The manufacturing PMI consists of five sub-indices, with new orders having the biggest weight at 30%, followed by output (25%), employment ( 20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

Data were compiled from replies to questionnaires sent to purchasing executives in over 400 industrial companies.

A PMI reading above 50 suggests improvement in business conditions, while a score below that signals deterioration.

“The Philippines manufacturing economy continued to expand in January but at a noticeably slower rate,” read the report, which said “[ m] arked slowdowns in output growth and new work inflows were key factors.”

IHS Markit economist Bernard Aw said in the report that the PMI was “the lowest on record” since the Philippine survey — conducted for Nikkei, Inc. by IHS Markit — began in January 2016.

The Philippines had been outperforming Southeast Asian peers in past surveys, but January regional data were not available as of yesterday.

“Dampening the headline index was a further loss of growth momentum in new orders, output and inventory levels,” the report said, noting that “[ t] he latest slowdown in new orders and output was linked in part to price increases restraining demand.”

The report said slower growth in orders was seen both at home and in foreign markets.

Mr. Aw also noted that “firms continued to experience sharp cost inflation, aggravated by a weak peso and broadly higher global commodity prices.”

“Amid reports of a weak exchange rate and higher commodity prices — specifically metals — average cost inflation was the most pronounced on record during January,” read the report, which also noted that “where possible, companies passed on higher costs to clients, easing the squeeze on their margins.”

But Mr. Aw said “[ a] lthough some of the additional cost burdens were passed on to clients — as highlighted by a further increase in output prices — the gap between input cost inflation and charge inflation is widening.”

“If this continues, manufacturers’ profitability may be at risk. Already, some companies are delaying input purchases due to higher prices.”

It also said slower expansion prompted keener cost management especially in the face of inflation that the central bank has noted has been on the rise since September last year. Factories barely increased employment in January in the face of slowing manufacturing growth.

Manufacturers’ confidence remained high in January, however, with nearly 88% of respondents anticipating bigger production in the next 12 months.

“Encouragingly, manufacturers’ sentiments for the year ahead remained high, buoyed by expectations of greater demand, expansion plans and improved marketing strategies,” Mr. Aw said.

“This suggests that the current slowdown could be temporary.”