Factory output hits 10-month high but job cuts continue

MANILA  -Strong demand kept Philippine factories humming in November to post their best performance in 10 months, although the brisk production that helped clear unfinished work gave companies a reason to cut payroll costs and resume job shedding.

A survey of around 400 companies showed the Philippines’ Purchasing Managers’ Index (PMI), a closely monitored gauge of manufacturing output, ticked up to 52.7 in November, from 52.4 in the previous month, S&P Global said in a report released on Friday.

The latest reading stayed above the 50-mark separating growth from contraction, which “signaled a further strengthening” of the local manufacturing sector, said Maryam Baluch, economist at S&P Global Market Intelligence.

Companies said “stronger demand conditions” continued to grease the wheels of production, auguring well for an economy that historically depended on consumption to power up growth.

New orders—both in domestic and foreign markets—jumped to an eight-month high in November, while output growth quickened to its fastest pace in 10 months, S&P said.

Manufacturers also reported winning new clients, helping boost overall sales and production.

READ: Household spending showing signs of recovery, says Pantheon

“Strong demand conditions supported quicker expansions of both new business and output,” Baluch said. “Moreover, confidence levels strengthened for the first time in three months, amid hopes of a continued improvement in underlying demand trends in the months ahead.”

‘Tepid’ employment growth

But there were concerning streaks of data that came out of S&P’s new report.

Survey results showed there were manufacturers that reduced their headcount in November after two months of “tepid” growth in employment. Notably, backlogs dropped for the fifth straight month in November, in what S&P said was a “continued evidence of spare capacity” that lessened the need to increase manpower.

READ: Philippine unemployment rate eased to 4.5% in Oct

At the same time, S&P said manufacturers faced “higher material and supplier costs” in November due to port congestion and supply shortages. This, plus fears of overstocking, dissuaded input buying at some companies, leading to a decline in purchasing activity for the first time in 15 months.

But S&P nevertheless reported a “modest uptick” in factories’ selling prices as other input price pressures stayed muted last month.

“While these fresh contractions were a slight cause for concern, the downturns were shallow overall and may be reversed if growth momentum is sustained, although global headwinds and sluggish demand from overseas markets could act as downside risks in the coming 12 months,” S&P’s Baluch said.