2-week ECQ dragged down manufacturing in August

Manufacturing activity shrank in August, after registering growth in the previous two months, due to Metro Manila’s revert to the strictest quarantine classification during the period, according to global information provider IHS Markit Ltd.

London-based IHS Markit said the Philippines’ purchasing managers’ index last month fell to 46.4 from 50.4 in July. An index below 50 means manufacturing activities contracted.

IHS Markit said August’s decline was a 15-month low or the steepest since May 2020.

“Production volumes fell for the fifth month in a row, with the rate of decline quickening to one which was the fourth quickest in the series history. The contraction was linked to the third wave of COVID-19 cases and the subsequent tightening of restrictions which led to factory and business closures during the month,” IHS Markit said. Metro Manila returned to enhanced community quarantine (ECQ) last Aug. 6-20 to contain the spread of the more contagious Delta strain.

Sharp decline in new orders

“Customer demand also fell sharply with the volume of new orders declining at one of the quickest rates in the series history. Tighter restrictions on travel and the closure of businesses led clients to curb orders. Weak domestic sales were accompanied by a renewed contraction in foreign demand. In fact, exports fell at the quickest rate since July 2020,” IHS Markit added.

Global port congestion due to the restrictions imposed amid Delta outbreaks overseas also caused delayed deliveries and raw material shortages, IHS Markit noted. “Delivery times lengthened at the most marked rate since August 2020 and was among the lengthiest in the over five-and-a-half-year history of the survey.”

These production bottlenecks resulted in “sharp and accelerated” job cuts in August. “This was largely attributed to factory shutdowns which meant employees were unable to work, leading to reports of resignations and layoffs,” IHS Markit said.

Easing of input prices

IHS Markit nonetheless said the drop in output and new orders were not as bad as the fall experienced during the most stringent lockdowns imposed in March to May of last year, at the onset of the pandemic.

It also helped that input price inflation, although still elevated, eased last month compared to cost pressures in July, IHS Markit added.

It also pointed to an “optimistic” outlook among domestic manufacturers due to expectations of that disruptions in their operations are temporary. IHS Markit economist Shreeya Patel said “vaccinations remain paramount to controlling the spread of the disease and the associated variants.”

“Policymakers have once again reiterated the importance of inoculating the population, which it endeavors to do by early next year. Firms will hope shocks to the supply of vaccines are brought under control to prevent this being pushed back again,” Patel said.