Mfg output picks up in March

The Philippine manufacturing sector picked up pace in March, driven by the rise in exports and faster growth in both output and new orders, the latest Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) showed.

The PMI increased to 51.5 in March from 50.8 in February, signaling a further improvement in the sector. This, however, is still lower than the 51.7 recorded in January.

“Despite the rise in the index during March, the average PMI reading for the first three months of 2018 was the lowest since the survey’s inception on January 2016,” said IHS Markit, the firm that collated data for the PMI.

The headline PMI is a composite index designed to provide a quick snapshot of the health of the manufacturing sector each month.

IHS Markit said the survey data reflected strong domestic demand that boosted both production and new orders.

“Inflows of new business picked up to the greatest in three months, buoyed by rising exports. Overseas sales returned to growth in March following two months of decline. Firmer sales prompted Filipino factories to scale up production. Output growth reached a three-month high,” IHS Markit said.

The increased demand, however, failed to stretch firms’ operating capacity, which weighed on hiring. Lower employment was reported again in March. “While voluntary leavers were cited as the main reason, some firms mentioned cost-cutting measures and efforts to bolster productivity,” IHS Marikit said.

Meanwhile, IHS said new excise taxes ,which were effective from January, continued to push up inflationary pressures last month.

“The rate of increase in both input costs and selling prices climbed to the highest in the survey history. Increased global prices for raw materials, in particular steel, chemicals, paper and sugar, as well as a weaker exchange rate also contributed to inflation,” the firm said.

IHS Markit principal economist Bernard Aw, however, said the rise in headline PMI suggest the adverse impact from the new excise taxes on demand could be fading.

Aw said order book could rise to a three-month high, supported by revived export growth.

“Not only did export sales return to expansion, the rate of growth was the fastest since the end of 2016. The upturn triggered firms to step up purchasing activity and build-up stocks,” Aw said.

Aw said one area of concern is the extent to which sharp cost increases could feed through to consumer prices which, in turn, would affect future monetary policy.

“Input cost inflation reached a new survey record high during March, matched by a sharp rise in selling prices as companies scrambled to protect their margins,” Aw said.

Aw cited the recent implementation of the new excise tax as a key reason for higher prices, especially in gasoline.

Consumer price inflation rose to 3.9 percent in Febru(traders) ary, the highest in almost three-and-a-half years.

Rising inflation will add to calls for the Bangko Sentral ng Pilipinas to raise interest rates.”

Aw said improved optimism for business is another factor that makes the sector promising.