Philippines: Manufacturing PMI firms up in August
September 3, 2018
According to data released by Nikkei and IHS Markit, the manufacturing Purchasing Managers’ Index (PMI) rose to 51.9 in August from 50.9 in July, inching further above the critical 50-point threshold that separates expansion from contraction in the manufacturing sector.
The improving operating conditions in August came on the back of a recovery in new orders growth, which accelerated after falling to an all-time low in July. New business was primarily driven by strong domestic demand as growth in export orders weakened notably. Furthermore, the increase in new orders led to the first report of job creation in three months. Output growth, however, softened in the month.
The other indicators also reflected the improvement. Stronger employment enabled firms to better work through backlogs of work, which fell at the fastest rate in over a year. Purchasing activity picked up in response to new orders, leading input inventories to increase. Supplier delivery times, however, lengthened due to supply chain pressures, input shortages, and poor traffic conditions.
In terms of prices, inflationary pressures increased sharply in August due to the effect of TRAIN regulations, higher prices for raw materials and a weak peso. In response, firms continued to raise their selling prices, passing on the costs to consumers.
Lastly, business confidence concerning output in the year ahead improved in August.
Commenting on cost inflation in August, Bernard Aw, a principal economist at IHS Markit, noted that:
“The Nikkei survey data indicated that the Philippines manufacturing sector looks to have regained some growth momentum in August […] However, the improvement in the health of the manufacturing sector was marred by strong inflationary pressures. […] With the indicators of price gauges remaining elevated, the August survey sends a hawkish message to policymakers.”
Author: Lindsey Ice, Economist