Manufacturing grows faster in May – IHS Markit

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PMI rises to 54.3% from 53.3% in April

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PHILIPPINE manufacturing remained firmly in expansionary mode in May, growing in both output and new orders amid higher employment, according to a survey sponsored by Nikkei and produced by IHS Markit.

The Purchasing Managers’ Index (PMI) stayed above 50, signaling a strong upturn, IHS Markit said in results released on Thursday.

The seasonally adjusted PMI rose to 54.3 percent in May, the highest so far this year, from 53.3 in April. It was lower than 55.7 in December 2016.

PMI is a composite index representing the weighted average of five individual sub-components, namely new orders, output, employment, suppliers’ delivery time and stocks.

IHS Markit economist Bernard Aw said domestic consumption and fiscal spending on infrastructure should continue to support manufacturing activity in the coming months.

Demand

“Buoyant client demand and business optimism prompted firms to build inventories at a faster rate,” Nikkei said. Growth in order book volumes accelerated to the highest in three months.

Anecdotal evidence pointed towards product launches and new client acquisitions as factors for higher business volumes.

“Buoyant domestic demand and business optimism augur well for the strong growth momentum to be sustained as we approach the end of the second quarter,” Aw said.

However, Nikkei noted new export orders rose at a much lower pace compared with total new orders, suggesting that domestic demand continued to be the main engine of growth.

The survey showed strong growth in output and new sales did not strain operating capacity. Backlogs continued to fall at a faster pace, stretching the sequence of decline to 15 months and reflecting spare resources in the sector.

In some cases, additional manpower ensured capacity remains well ahead of production requirements. Data showed that manufacturers increased staffing levels and extended the current period of expansion to 17 months.

“In part, sustained employment growth ensured that operating capacity remained sufficient to meet demand. Business optimism and a healthy sales pipeline hint that the robust hiring pace is likely to continue,” Aw said.

Firms expanded their purchases in response to higher production levels with the acquisition rate of raw materials and semi-manufactured goods picking up from the previous month—consistent with faster output growth, Nikkei noted.

“However, a strong appetite for inputs was within suppliers’ capacity for timely deliveries. Vendor performance improved further in May, though only modestly,” it said.

Despite higher production usage and orders, the recent build-up in inventories gathered pace, the survey showed, and data indicated growth in stocks of both pre-production inputs and finished goods picked up from April.

“In both cases, firms highlighted the need to prepare for higher production and new orders over the coming months,” according to Nikkei.

Higher cost

Although there were signs of easing inflationary pressures, cost increases persisted at an elevated rate, according to the survey.

Nikkei said firms blamed higher costs on peso depreciation and higher prices of raw materials, which in some cases was a result of supply shortages.

“The slower rise in input cost inflation led to a smaller hike in factory gate prices. Charge inflation was reported to mainly reflect higher imported costs,” it said.

A weaker exchange rate didn’t noticeably boost foreign demand, it led to higher imported inflation, Aw noted.
“Input cost increases remained elevated, although there were signs of easing inflationary pressures. Greater costs prompted firms to raise charges further to protect their margins,” he said.

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