PH manufacturing shrinks for 3rd straight month in May

Manufacturing shrank for a third straight month in May as an easing of COVID-19 lockdown slowed down a further decline in purchasing managers’ index (PMI), a gauge of manufacturing trends.

The latest manufacturing PMI, which is an indicator of economic activity, released by London-based global information provider IHS Markit Ltd on Monday showed an improvement to 40.1 in May from a record low of 31.6 in April, the first full month of enhanced community quarantine (ECQ) in Luzon and elsewhere.

A PMI below the neutral 50-level meant manufacturing decline, which the Philippines recorded since March when the ECQ was first implemented.

“The easing of measures in some regions helped the rate of contraction in production soften from April,” IHS Markit said.

While areas with high COVID-19 cases were kept under modified enhanced community quarantine (MECQ) in mid-May, a less restrictive general community quarantine (GCQ) covered areas with low infections.

“Production levels were subdued due to lockdown measures remaining broadly in place across the Philippines,” IHS Markit said.

“However, reports of the partial easing of restrictions in rural areas led to a less severe decline than that seen in April, with some businesses able to restart operations,” it said.

“That said, ongoing social distancing led to capacity being much lower than normal, while weak new order volumes often discouraged firms from raising output,” IHS Markit added.

However, IHS Market said orders from both domestic and export markets remained subdued as the COVID-19 pandemic took its toll on the global economy.

“Demand for manufactured goods continued to fall during the month, with the latest decrease softer than that seen in April but still the second-sharpest since the series began in January 2016,” IHS Markit noted.

IHS Markit said “employment levels fell sharply, while purchases were heavily reduced in May” amid excess capacity.

“Employment was reduced for the fourth time in five months during May,” the think tank said.

“Businesses largely related the fall to weaker sales and restrictions to output, with many panellists operating with minimal employee numbers,” it said.

“The fall in new orders meant that capacity to complete backlogs remained sufficient, although outstanding work dropped only marginally and at the softest pace in over four years,” IHS Markit said.

Also, IHS Markit economist David Owen said “price pressures began to inflate in May after marked decreases during March and April.”

“Raw material prices rose slightly as reductions in global supply started to outweigh weaker demand and lead to difficulties in acquiring inputs,” Owen said.

“Output prices also increased, but firms tried to keep charge inflation low, hoping this would encourage an improvement in sales once demand conditions have returned to normal,” he added.

Edited by TSB