PH manufacturing at record low in March
THE Philippine manufacturing sector contracted to its lowest level on record last month, according to the latest survey of IHS Markit, which attributed the plunge to the enhanced community quarantine imposed on Luzon.
Results of the poll released on Wednesday showed the seasonally adjusted Purchasing Managers’ Index (PMI) dropping to 39.7 in March from 52.3 in February.
The indicator takes into account new orders, output, employment, suppliers’ delivery time and stocks. Readings above 50 signal an expansion; below that, a contraction.
In a report, IHS Markit said “the latest figure was the lowest in the series’ history, having dropped below the 50.0 neutral mark for the first time, and signaled a marked deterioration in operating conditions.”
Manufacturing production was a key factor leading to weaker business conditions during the month, with firms reducing output at a record pace, it added.
IHS Markit said the downturn was largely due to the Luzon-wide lockdown, which led to numerous factories shutting down and falling production levels.
The government imposed the expanded quarantine on March 16 to curb the spread of the coronavirus disease 2019 (Covid-19).
Customer demand also fell sharply since February, as the volume of new orders decreased at the fastest pace in the series’ history.
“Restrictions on travel and weaker activity led clients to curb orders, while firms also suffered from a large drop in overseas sales,” IHS Markit said.
In response, purchasing activity fell steeply as firms looked to recover costs and restructure stocks in line with lower demand, it added.
Inventories of pre-production goods also dropped, while stocks of finished products decreased at a rapid pace due to weaker production.
Lower buying levels led suppliers to reduce input prices in March, which translated into a notable drop in total input costs for manufacturers.
“Oil prices were also mentioned as a contributing factor. As a result, businesses lowered selling prices steeply amid efforts to restore sales,” it said.
Employment in the sector also slipped at a record rate in March, which IHS Markit attributed to shutdowns.
This meant employees were unable to work, leading to reported of layoffs and resignations.
With demand weak, firms were nevertheless able to reduce outstanding business.
“The Covid-19 pandemic also contributed to a sharp deterioration in supplier performance at the end of the opening quarter,” IHS Markit said.
Delivery times increased for the eighth straight month, with the extent of delays the most marked in the series’ history.
IHS Markit pointed out that transport restrictions, increased checkpoints and slower deliveries from China all contributed to the slowdown.
Last, the outlook among local manufacturers fell to its least optimistic level last month.
“The overall degree of confidence was only marginally positive, as concerns around the long-term impact of the coronavirus pandemic weighed on business forecasts,” IHS Markit said.
However, hopes of a swift return to normal operations and a rebound in new contracts helped to partly offset these downbeat predictions, it added.