Economy

Manufacturing activity expands in May

A worker uses a microscope at an electronics manufacturing assembly plant in Biñan, Laguna, April 20, 2016. — REUTERS

MANUFACTURING ACTIVITY in the Philippines further expanded in May as new orders and production grew at a faster clip, S&P Global said.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) rose to 52.2 in May from an eight-month low of 51.4 in April, signaling “further improvement in operating conditions.”

“The upturn was supported by a solid rise in both output and factory orders, with firms also expanding their workforce numbers for the first time in four months. More encouragingly, vendor performance improved in May for the first time in almost four years. Companies reported that improved logistics routes helped shorten delivery times,” Maryam Baluch, economist at S&P Global Market Intelligence, said in a report released on Thursday.

May marked the 16th straight month that the PMI reading stood above the 50 mark which denotes improvement in operating conditions. A reading below 50 signals deterioration.

The headline PMI measures manufacturing conditions through the weighted average of five indices: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%), and stocks of purchases (10%).

The Philippines had the third-highest PMI reading among five Association of Southeast Asian Nations (ASEAN) member countries, behind Thailand (58.2) and Myanmar (53). On the other hand, factory output activity contracted in Malaysia (47.8) and Vietnam (45.3).

“The improvement in the health of the Filipino manufacturing sector during May was driven by quicker expansions in both factory orders and manufacturing output, which have now risen each month since September 2022,” S&P Global said.

The rise in new orders was driven by “stronger demand conditions and the acquisition of new clients,” it added.

“Demand from foreign markets also fared well in the latest survey period, with export volumes growing solidly, albeit at a slightly softer pace compared to April,” S&P Global said.

After three months of decline, manufacturing firms resumed expanding their workforce in May “at the strongest pace since October last year.”

“Businesses expanded their hiring activity for the first time in four months, and at the strongest pace since October last year,” it added.

Increased demand also prompted firms to boost buying activity in May.

“In anticipation of future demand, manufacturing firms were keen to raise their inventory levels. Stocks of pre-production items rose further, thereby extending the current sequence of growth seen since September 2021, while manufacturers also raised their holdings of finished items following back-to-back months of depletion,” S&P said.

Improvements in the supply chains resulted in shorter delivery times for inputs in May, which “marked the first time in 46 months that the respective seasonally adjusted index posted above the neutral 50 threshold.”

While May data showed a “re-intensification of price pressures,” S&P Global noted the inflation rates for input prices and output charges were softer than historical average.

“Firms noted that high energy, material and supplier costs were passed on to clients in response to sharper cost inflation,” it said.

Despite this, S&P Global said that the outlook for the future output growth remains “broadly optimistic.”

“In terms of future output, firms remain largely upbeat, though confidence did take a slight hit and dipped to an 11-month low,” Ms. Baluch added.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said that the expansion in new orders and output in May signaled “robust demand onshore.”

“Lead times also improved showcasing improved supply chain conditions. One additional positive development was the improvement in employment with the uptick in manufacturing activity translating to more jobs,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that easing inflation led to improved factory output.

Headline inflation slowed to 6.6% in April from 7.6% in March.

The Bangko Sentral ng Pilipinas (BSP) projects inflation to slow to within the 5.8-6.6% range in May.

The Philippine Statistics Authority is set to release May inflation data on June 6.

However, this is still above the central bank’s 2-4% target range and 5.5% full-year forecast.

On the other hand, Mr. Ricafort noted that elevated inflation and rising interest rates could lead to higher borrowing and financing costs, which could impact manufacturing activity.

Since May last year, the BSP has raised key interest rates by 425 basis points to 6.25%. — Luisa Maria Jacinta C. Jocson

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular

Your daily news source covering investing ideas, market stocks, business, retirement tips from Wall St. to Silicon Valley.

Disclaimer:

TheProficientInvestor.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice.
The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 TheProficientInvestor. All Rights Reserved.

To Top