PH factory slump deepens on weak sales, El Niño
Philippine factory activity contracted further in October as manufacturers grappled with weak demand at home and abroad, while unusually hot weather linked to the ongoing El Niño episode weighed on production.
The country’s Purchasing Managers’ Index (PMI), a gauge of manufacturing activity, fell to 49.1 in October from 49.6 in September, according to a survey of about 400 manufacturers by S&P Global released on Tuesday.
A reading below 50 indicates contraction. October marked the third time this year that factory activity had shrunk.
S&P Global said manufacturing output continued to decline, although at a slower pace, as the downturn in demand deepened. Companies reported weaker demand in both domestic and overseas markets, though the drag from foreign sales eased.
That happened even as price pressures across the domestic manufacturing sector moderated during the latest survey period. Both operating expenses and charges rose only modestly, as the majority of respondents reported a steady month-on-month prices picture.
“Some firms cited that weak demand and the current hot weather, linked by some panelists to El Niño, weighed on the two main contributors to the headline PMI index,” the firm said.
With production requirements falling, manufacturers cut back on purchases of raw materials and other inputs. Purchasing activity recorded its steepest decline in 11 months.
Employment also fell for a second consecutive month. While the decline remained modest, it accelerated from September, with some companies attributing the reduction to employee resignations.
Siân Jones, principal economist at S&P Global Market Intelligence, said the central bank’s recent 50-basis-point interest rate increase could further weigh on sales and investment by raising borrowing costs.
“Although declines in output and new orders remained modest, the sharper fall in purchasing activity and further job losses suggest manufacturers remain cautious amid subdued demand,” Jones said.
Looking ahead, confidence towards the year-ahead outlook for production bounced back up in October, after the sentiment index more than recovered the ground lost in September to a near two-year high.
Optimism was underpinned by hopes that improved demand and new projects and customers would drive output growth, survey data showed.
“However, stronger optimism has yet to translate into a recovery in orders or hiring,” Jones said.
