The country’s manufacturing PMI slipped to a six-month low in February, an IHS Markit/Nikkei survey found, reflecting job cuts and slower growth in input inventories.
Results of the survey released on Thursday showed a seasonally adjusted Purchasing Managers’ Index (PMI) of 50.8 for the month, down from 51.7 a month earlier and the lowest reading since the 50.6 posted in August last year.
The PMI is an indicator of the economic health of the manufacturing sector. It is based on several indicators including output, new orders, backlogs, output and input prices, suppliers’ delivery times, stocks of finished goods, quantity of purchases, employment and future output.
“Growth in the Philippines manufacturing sector slowed further midway through the first quarter. While output and new orders expanded at faster rates, a slower rise in input inventories and job losses weighed on sector performance,” IHS Markit/Nikkei said.
February, however, also showed tentative signs of recovery in demand after new excise taxes reportedly restricted order book growth at the start of the year.
New business intake increased at a faster rate than in January, mostly supported by the domestic market as foreign demand remained soft, with export sales falling for a second straight month.
In line with higher demand, Filipino factories scaled up production, with output growth improving on January. Purchasing activity also picked up as a result of greater production requirements, the survey found.
“Other reasons for increased buying activity included higher sales as well as efforts to build buffer stocks, according to anecdotal evidence,” IHS Markit/Nikkei said.
However, faster growth in purchasing failed to translate into a larger build-up in input inventories.
The manufacturing sector continued to report falling work backlogs, reflecting an ongoing lack of capacity pressure that also weighed on hiring.
“Staffing levels fell for the first time in five months during February and at the fastest rate in the survey history.
While firms generally commented on voluntary leavers, there were reports of layoffs as part of cost-saving measures,” IHS Markit/Nikkei said.
Inflationary pressures also intensified, partially driven up by new excise taxes with both input and output prices rising at survey record rates.
“Survey data suggested that the effects of the new excise taxes (implemented in January) continued to be felt on the price front,” IHS Markit/Nikkei said.
Average cost burdens surged, with the rate of inflation the highest in the survey history.
The combination of higher prices for raw materials such as oil, plastics and paper, a weaker exchange rate and new excise taxes were the main drivers for sharp cost increases.
In response, average charges for manufactured goods also rose at a survey-record rate.
Business confidence, meanwhile, remained elevated amid higher sales forecasts but nonetheless dipped to the lowest in survey history.
IHS Markit principal economist Bernard Aw said that while the influence of tax reforms was expected to fade in coming months, price pressures could become more entrenched on rising imported inflation, which will add to calls for the Bangko Sentral ng Pilipinas to raise interest rates.
“In the recent policy meeting, [BSP] Governor Nestor Espenilla commented that headline inflation is likely to break above the 2-4 percent range target in 2018 but more evidence of rising price trends is necessary before deciding to tighten policy,” Aw noted.