Philippines: Manufacturing PMI falls to five-month low in July
August 1, 2018
The manufacturing Purchasing Managers’ Index (PMI) dropped from 52.9 in June to 50.9 in July, according to data released by by Nikkei and IHS Markit. Despite the drop, the PMI remains above the critical 50-point threshold that separates expansion from contraction in the manufacturing sector.
July’s print came on the back of weaker expansions in output and new orders, which also led to lower growth of input inventories. Notably, growth in new orders reached an all-time low despite strong increases in export demand—the highest in over a year and a half—indicating a clear softening in domestic conditions at the start of the third quarter.
The weaker level of manufacturing activity was also evident in the other indicators: backlogs of work continue to decline, while supplier delivery times shortened for the first time since March. Purchasing activity, meanwhile, expanded at the slowest pace in six months, while payroll numbers fell for the second consecutive month, albeit marginally.
Looking at price developments, inflationary pressures remained strong in July. This was due to a combination of factors such as a weaker peso, the effect of TRAIN regulations, and higher prices for raw materials such as diesel and plastics. This consequently led firms to again increase their selling prices in July, but the increase recorded came under that of inputs, signaling that manufacturers’ profit margins were somewhat compressed.
Lastly, the slowdown in production and new orders led to a drop in manufacturers’ expectations about output in the year ahead, which reached their lowest point in the survey’s history but nevertheless remained positive.
Commenting on demand conditions in July, Bernard Aw, principal economist at IHS Markit, noted that:
“Slowing demand presents a worrying development and raises questions whether the recovery from the rollout of new excise taxes at the start of this year is losing steam”.
Author: Joffrey Simonet, Economist