Factory activity hits 9-month high

PHILIPPINE MANUFACTURING activity inched up to a nine-month high in December on increased orders, IHS Markit said on Monday.

The Philippines Manufacturing Purchasing Managers’ Index (PMI) rose to 51.8 last month from 51.7 in November, the highest since 52.2 in March 2021.

A reading above 50 indicates improving conditions for the manufacturing sector while anything below suggest the opposite.

“The Philippine manufacturing sector remained in a solid position during the closing month of 2021, with the headline PMI at a nine-month high,” Shreeya Patel, an economist at IHS Markit, said. “Supporting this was an improvement in domestic demand and a slight uptick in output, the first for nine months.”

She said the PMI reflected companies’ optimism that demand will continue to improve, prompting them to make advance preparations.

This marked the fourth consecutive month of growth after PMI fell to 46.4 in August after factories were shut due to the two-week strict lockdown in the capital region amid a Delta-driven surge in coronavirus infections.

PMI is the weighted average of five sub-indices — new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).

IHS Markit said new orders continued to increase, encouraging companies to stock up on inventories for the fourth straight month.

“As a result, firms raised their output expectations for the year ahead which improved to a near two-year high. That said, there were still widespread reports of material scarcity and supply-chain disruption,” IHS Markit said.

Increased orders were driven by domestic demand. However, new export orders declined at the fastest rate in four months due to  Omicron variant-driven restrictions in other countries.

Production volumes also grew slightly, expanding for the first time since March.

Meanwhile, manufacturing companies reduced their workforce for the 22nd straight month, although not as much.

“While new orders increased, firms had sufficient capacity to deal with demand. A decline in outstanding business supported this, with backlogs falling at the third-steepest rate in the near six-year history of the survey,” IHS Markit said.

Supply chain issues continued to be a problem as pandemic-related restrictions limited companies’ ability to access inputs.

Meanwhile, scarce materials in December, along with anticipated future demand and price hikes, led companies to stockpile.

“Buying activity rose at the quickest rate for six months while stocks of purchases expanded for the fourth month running,” IHS Markit said.

Both supply chain issues and material scarcity led to higher input prices.

“Supply-side issues and virus-related restrictions threatened the sector once again. Delivery delays were pronounced and often hindered production. Shortages, meanwhile, continued to drive up expenses, despite some signs of a moderation in input and output prices in December,” Ms. Patel said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the recent improvement in the country’s PMI is “one of the bright spots” for the economy.

The economy was further reopened in November, allowing businesses to operate at higher capacity, which then supported manufacturing activities, he said in a Viber message.

But lockdown restrictions in Metro Manila were again tightened starting Monday as COVID-19 cases surged during the holidays.

“This could slow down economic recovery and potentially slow down the PMI manufacturing gauge in January,” Mr. Ricafort said.

IHS Markit said manufacturing companies are optimistic about output for 2022 as they expect higher demand from customers. In December, business sentiment was at its highest since January 2020.

But Ms. Patel also warned that the Omicron variant would likely affect the Philippine manufacturing sector.

“Supply-side issues are likely to persist while case numbers and input price inflation could climb further as we head into the New Year,” she said.

The Health department on Monday reported 4,084 COVID-19 cases, bringing the active case count to 24,992. — Jenina P. Ibañez