EDITORIAL

The power of a promise

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Factories are humming again in America, Canada, China, Japan, Europe minus the UK, even in North Korea, where machines are churning out garments using China-made textiles.

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In the US, the manufacturing index hit a 13-year high of 60.8 in September on the back of strong conditions, even as some sectors expressed worries about rising supply costs due to hurricanes.

In contrast, manufacturing activity in the Philippines remained muted in September. Data from the latest Nikkei/IHS Markit survey, a generally accepted market indicator, showed on Monday the Purchasing Managers’ Index (PMI) for last month stood at 50.8, little changed from a record low of 50.6 in August.

The PMI is a composite index representing the weighted average of five subcomponents namely, new orders, output, employment, suppliers’ delivery time and stocks. A PMI index above 50 signals an expansion while readings below that benchmark signal a contraction.

Since its peak in September 2016 and high levels of activity were sustained until around Christmas of that year, the trend has eased, with a sudden drop in January 2017. The decline may still be considered a normal trend after a sharp rise in demand during the holidays. But when the third quarter failed to rebound to anywhere near the year-earlier levels, the charts affirmed a waning of factory activity.

Indeed, economist Bernard Aw of IHS Markit saw in the September survey results slowing output growth and a modest sales trend. Companies also blamed reduced overtime work and shortages in inputs, while a weak peso was seen adding to manufacturers’ worries. Coupled with supply shortages due to bad weather, costs for manufacturing inputs, especially in industrial metal and paper, increased further. Aw also noted reports of rising cost inflation affecting production levels.

We must be relieved the indicator did not slip below 50 after the sector hit the doldrums in August.

In fact, the PMI registered an uptick in September, and behind this mild growth, Aw, the economist saw an underlying tone of optimism.

He noted that survey respondents, looking ahead, cited various reasons to remain optimistic, including higher sales forecasts, new product launches, improving economic conditions, marketing activity and business expansions. Majority of companies (67 percent) anticipate output to increase over the next 12 months, and that in turn, encouraged them to prepare for higher production growth by building up stocks of raw materials and semi-finished goods.

That optimism encouraged manufacturers to increase their purchases of inputs at the end of the third quarter. Purchasing activity rose noticeably faster compared with the previous month, which contributed to a larger buildup in pre-production inventories.

“It is reasonable to link the optimism to robust economic growth and public infrastructure spending,” Aw said.

When the PMI dropped in August, it reflected the growing sense of uncertainty among manufacturers over how much the squabbles in local politics, corruption and killings could disrupt the country’s economic momentum.

The following month, however, Philippine industries showed they could no longer afford to wallow in such gloomy outlook as the world’s leading economies kept pushing onward.

Besides the US, another close ally, Japan, recorded the highest jump in confidence among its biggest manufacturers in a decade, with its latest quarterly Tankan report showing a reading of 22, beating market expectations for a reading of 18.

Not wanting to be left behind, Philippine industries chose to keep their sense of direction intact, holding on to the government’s promise of spending on the big infrastructure projects in the months ahead, hopeful of sustaining annual growth at about 7 percent and staying resilient as they have always been.

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