Modest factory improvement marks Oct.

FACTORY ACTIVITY in the country improved “modestly” — though the latest reading was the best in nine months — in October, with bigger output and new orders offsetting record-low business expectations, according to findings of the latest Philippine survey conducted by IHS Markit that were released on Monday.

The IHS Markit Philippines Manufacturing purchasing managers’ index (PMI) bared “modest improvement” with a 52.1 reading for October, climbing from the preceding month’s 51.8, “signalling a moderate improvement in the health of the goods-producing sector,” according to a news release on the country report. The latest reading matched that of July and was the best performance since January’s 52.3.

Regionwide, the Philippines maintained its second spot among the seven Southeast Asian countries tracked, next to Myanmar’s 53 (up from 52 previously). They were the only two economies in the region that bared upticks from the preceding month. “… [o]nly Myanmar and the Philippines reported an improvement in operating conditions, contrasting heavily with a marked deterioration in Singapore and a further decline in Malaysia,” the regional report quoted IHS Markit Economist Lewis Cooper as saying.

The Philippines also bested the region’s average of 48.5 that marked a deterioration for the fifth consecutive month.

PMI is the weighted average of five indices, namely: new orders with a 30% weight, output with 25%, employment with 20%, suppliers’ delivery times with 15% and stocks of purchases with 10%. PMI readings above 50 signal improvement in operating conditions from the preceding month, while those below that denote deterioration. The Philippine results were based on responses to monthly questionnaires by purchasing managers of about 400 manufacturers that were collected on Oct. 11-24.

Philippine manufacturers saw modest expansion in rate of production on the back of new orders.

New orders rode a “solid increase in demand due to greater client numbers and an improvement in export conditions,” IHS Markit said in a press release on Monday. “In fact, sales to overseas clients rose for the first time in five months, albeit only modestly.”

Firms continued to pay higher prices of input goods in October. Respondents attributed such input inflation to “higher prices of raw materials, including metals and food stuff” as well as “reduced input availability”.

At the same time, the hike in selling prices eased “to the softest rate since the first month of [Philippine] data collection in January 2016.”

“While a number of firms raised prices due to greater cost pressures, most kept them unchanged in order to maintain a solid inflow of new business.”

“A stand-out from October data was a further fall in the pace of output charge inflation, which reached the weakest since January 2016. Despite a solid rise in cost burdens, many firms looked to keep prices unchanged in order to maintain a strong market environment,” David Owen, economist at IHS Markit, was quoted by the press release as saying.

And as respondents saw “another steep reduction in outstanding business,” they “saw little need” to hire more workers. Hence, employment increased “at the softest pace” in three months.

Traffic also hampered supply delivery with “lead times increased for the third month in a row and at the fastest rate so far this year.”

Finally, factory outlook weakened further to “a new record low for the survey”, even as “many panelists remained optimistic” about future output “due to sales growth, new products and store openings.” — Beatrice M. Laforga