Factory sector posts strong start to 2023

MANUFACTURING activity continued to improve at the start of 2023 with the Philippine purchasing managers’ index (PMI) gaining for a third month in a row.

The S&P Philippines Manufacturing PMI rose to a seven-month high of 53.5 in January, S&P Global reported on Wednesday, up from 53.1 a month earlier.

The result “signaled strong gains across the ... sector at the beginning of 2023,” it said in a statement.

“Firms raised their production levels and sharply bumped up their buying activity as a strong and accelerated upturn in new orders was reported in January,” it added.

PMI readings above 50 indicate growth while those below point to a contraction. The index, which gauges economic activity among businesses, distills responses about new orders, output, employment, supplier delivery times and stocks of purchases.

Operating conditions were said to have “improved solidly” in January and “the rate of expansion posted was strong in the context of historical data,” S&P Global said.

Output expanded for a fifth month in a row with production levels up sharply.

“Anecdotal evidence pointed to increasing demand for Filipino manufacturing goods,” S&P Global said, with new orders also accelerating during the month.

Foreign demand rose and an increase in international clients and stronger demand from China was said to have “helped revive exports for the first time in 11 months.”

Firms correspondingly moved to address the demand with the rate of expansion hitting a record high. Companies reported a rise in unfinished work, “marking only the fifth month of growth” in backlogs since the PMI series began in 2016.

Manufacturers also had to tap inventories to meet demand.

While destocking was only “slight,” stockpiles of finished goods diminished.

The rise in demand also did not lead to higher operating expenses as cost pressures moderated, S&P Global said.

“The pace of input price inflation was the slowest in two years and below the survey average, with charges levied also rising at a softer rate than seen in over a year,” it added.

Easing supply chain pressures also contributed to slower cost inflation. While supplier performance again worsened, average lead times lengthened at the slowest pace since November 2019 as third-party vendors and less stringent port requirement alleviated pressures.

Hiring, however, remained weak with the index for this nearing 50.0 as layoffs and resignations weighed on job creation.

Optimism among manufacturers, meanwhile, rose from December’s four-month low to above the historical average.

“Close to two-thirds of the panelists anticipated higher output in the coming 12 months compared to just 1 percent that were downbeat,” S&P Global said.

Commenting on the survey findings, S&P Global Market Intelligence economist Maryam Baluch said the data “also suggested that the aggressive monetary stance taken by the central bank has been effective ...”

“Encouragingly, demand has yet to be impacted negatively by policy changes,” she added.

Strong domestic demand, Baluch said, had fed into increased optimism for the year ahead.

“Moreover, the lack of Covid restrictions, greater investment in new products and undertaking new projects aided hopes of a prosperous year for the Filipino manufacturing sector.”