Philippines: Momentum in the manufacturing sector wanes in March; business sentiment hits lowest level in survey history
April 1, 2019
The manufacturing Purchasing Managers’ Index (PMI), produced by Nikkei and IHS Markit, edged down to 51.5 points in March from 51.9 points in February, which marked a seven-month low for the survey. Nevertheless, the index remained above the critical 50-point threshold that separates expansion from contraction in the manufacturing sector.
Softer manufacturing conditions in March were largely due to the weakest increase in output in seven months. However, production results were mixed among manufacturers, with some reporting higher output while others saw production fall due to declining sales and raw material shortages. Meanwhile, new orders continued to rise at a solid rate, and as new exports declined slightly in March, demand appeared to be primarily supported by the domestic market. Given sustained demand, manufacturers’ purchasing activity rose modestly in the month. Although employment fell marginally in March, anecdotes suggest this was due more to resignations and retirements than layoffs. Despite lower staff levels, firms still continued to work through backlogs, but at a slower pace. Delivery times lengthened in March, however, as ongoing port congestion in Manila continued to exacerbate supply chain issues.
In terms of prices, input cost inflation fell to a three-year low and in turn, output prices rose at a weaker rate in March.
Commenting on the problems at the port, David Owen, economist at IHS Markit, noted:
“Port congestion at Manila continues to increase lead times and reduce raw material supply, and will likely harm exports if the problem is not contained. However, managers will be pleased with reports of even softer price pressures, which should boost profit margins.”
Finally, business confidence fell to the lowest level since the survey began in 2016in March. Firms were decidedly less optimistic about the outlook for production this year. On a brighter note, some companies still held a positive assessment of the year ahead thanks to company growth, stronger new orders, and product development.
Author: Lindsey Ice, Economist