Factory output declined 6.3% year on year in October, says NSO

Factory output dropped 6.3 percent year on year in October 2011, according to the National Statistics Office (NSO).

NSO attributed the October slump to reduced production in major sectors such as basic metals, machinery (except electrical), electrical machinery, food manufacturing, and footwear and wearing apparel.

Month on month, factory output dropped 2.5 percent in October 2011, pulled down by five of 11 major sectors.

The NSO noted month-on-month declines in the production of electrical machinery, footwear and wearing apparel, paper and paper products, basic metals and fabricated metal products.

“The biggest challenges faced by manufacturers have to do with improving or at least maintaining competitiveness. There are many factors involved: fuel prices have been volatile, going up and down and up again, while overall demand is slow,” Dr. Gilberto M. Llanto of state-owned think tank Philippine Institute for Development Studies said in a phone interview.

A 6.3-percent annual drop is not too worrisome yet, but at the same time, the Philippines should not be complacent considering that factory output is a leading economic indicator, Llanto said.

“We must improve infrastructure, regulations and governance—those present difficulties for investors and traders,” Llanto said.

Output contraction may be attributed to plunging exports and slowing domestic demand, Dr. Benjamin E. Diokno of the UP School of Economics said in a text message.

Sluggish factory output drags imports, in turn, Dr. Cid L. Terosa of the University of Asia and the Pacific said.

Only about 15.2 percent of establishments surveyed operated at full capacity (90 percent to 100 percent) in October 2011, the NSO said.

About 60.7 percent of the establishments operated at 70 percent to 89 percent capacity, while 24.1 percent of the establishments operated below 70 percent capacity.

On average, manufacturers used 83.1 percent of their factories’ capacity in October.

Eleven of the 20 major sectors registered capacity utilization rates of 80 percent and more, the NSO said.