• Manufacturing growth eases; still solid–Markit

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    April PMI at 53.3%, down from March, lowest since Jan

    PHILIPPINE manufacturing continued to grow in April but at an easier pace, with domestic demand absorbing most of the increase in output while foreign sales posted only mild growth, a survey sponsored by Nikkei and produced by IHS Markit showed in data released on Tuesday.

    Despite slowing from the previous month, however, the rate of growth in the Purchasing Managers’ Index (PMI) remained upbeat as readings above 50 signal an expansion, reflecting another solid improvement in the health of the manufacturing sector, IHS Markit said.

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

    The seasonally adjusted PMI in April stood at 53.3 percent, down slightly from 53.8 in March. The April index marked the lowest level in four months since it registered 52.7 in January.

    Growth sustained into Q2

    IHS Markit economist Bernard Aw views the numbers positively, saying the solid manufacturing upturn recorded in the first quarter was sustained into the second quarter, underpinned by domestic demand.

    “There were further signs that growth momentum will be sustained for the rest of the quarter, as forward-looking indicators, such as new orders and expectations, continued to show robust trends,” he said in a statement released along with the survey results.

    Aw pointed out that the domestic market continued to be the key driver of manufacturing growth, with foreign demand for Filipino manufactures rising only modestly despite the depreciation of the peso.

    The weaker local currency even led to costlier imported inputs. Cost inflation remained elevated, which prompted manufacturers to raise charges to protect their margins.

    “Despite an ongoing increase in demand, there seems to be no risk of an overheating manufacturing sector. Filipino factories continued to hire more workers and supply chains remained clear. As such, PMI data signaled another drop in backlogs,” Aw said.

    Going forward, Aw expects that increased construction activity, alongside greater public infrastructure spending as reported, to support the manufacturing industry in the coming months.

    Rising demand amid business optimism

    Nikkei said the PMI in April signals an expansion of the manufacturing sector at the start of the second quarter, underpinned by growth in both output and new orders.

    “Increased client demand and business optimism prompted firms to raise employment levels and purchasing activity, although greater production usage continued to lead to a more modest rise in inventories, it said.

    The survey showed supplier capacity remained sufficient to handle greater demand. Price-wise, cost inflation remained elevated, which led to another marked rise in factory gate prices.

    Total order book growth slowed from March, but the rate of expansion still reflected strong client demand.

    “Anecdotal evidence indicated that solid economic growth and increased construction activities contributed to higher new business volumes. Overseas demand for Filipino products grew at the slowest in 14 months, suggesting that the domestic market remained the main engine for manufacturing growth,” Nikkei explained.

    The poll results also showed strong inflows of new business, which continued to support output growth.
    “In some cases, new product launches were cited as the key reason for greater output,” it said.

    Despite a strong new order pipeline and busier production schedules, the level of incomplete work continued to fall. Backlog depletion was recorded for a 14th straight month, in part supported by a further rise in employment levels, Nikkei pointed out.

    “Improved production workflows and penalties for delayed deliveries were also highlighted by panel members as key factors. Greater operational requirements saw Filipino factories increase staff numbers in April, albeit at a slower rate,” it said.

    The survey said that expectations of greater future demand and restocking needs led to higher purchasing activity, although the accumulation rate for inputs grew by a lesser extent compared with that in March.

    Little build-up in inventories

    Higher production usage and orders led to another modest build-up in inventories, it added, noting that expansion in pre-production stock levels increased at a slightly faster pace since March but remained weak.
    “Inventories of finished products barely increased in April, with the pace of growth the slowest in the current trend of expansions,” it said.

    The poll said increased demand did not strain supplier capacity. On the contrary, vendor performance improved for the fourth straight month.

    “This was largely due to better management of suppliers and penalties for late deliveries,” it said.

    Cost increases persist

    On the price front, even though there was some easing of inflationary pressures, cost increases persisted at an elevated rate, it said.

    “PMI data suggested that a weak exchange rate and higher raw material prices remained key drivers of inflation. Prices for manufactured goods rose in tandem with greater costs as firms sought to protect margins,” Nikkei added.

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