Manufacturing growth slowed down in August

Amid softening domestic and export demand, the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) slid to 50.6 in August, its lowest level since the local survey was started a year ago.

Last month’s PMI reading slid from 52.8 in July and was the lowest since September last year.

While the August PMI score was still above 50, which indicated an overall increase in manufacturing activity, global research firm IHS Markit said “the latest reading signaled only a marginal improvement in the health of the sector, contrasting with the solid growth seen in the first half of the year.”

“Signs of a softening in demand through the third quarter continued to emerge. There was a considerable slowdown in order book growth to a level well below the historical survey average,” IHS Markit said in a report.

“The Philippines manufacturing economy lost further momentum in the face of softening demand from both domestic and external sources during August. Growth in output and new orders were both recorded at noticeably slower rates. The softer growth in demand led to a fall in employment—the first time in the survey history,” IHS Markit principal economist Bernard Aw said in a statement.

While short-term prospects appeared increasingly weak, longer-term expectations remained optimistic, Aw said, adding that the majority of surveyed companies continued to anticipate output growth over the next year, suggesting that the recent slowdown could be temporary.

However, he said there was a need to monitor the situation of raw material shortages, which had affected production schedules, resulting in slower output growth. As for jobs prospects, Aw said an ongoing lack of capacity pressure, as signaled by a persistent fall in backlogs, meant that Filipino manufacturers might not be in a hurry to boost hiring.

Also, IHS Markit noted that the peso’s weakness was stoking further inflationary pressures, impacting on prices of raw materials as well as finished products.

The peso slid to an 11-year low of 51 to $1 last month partly due to external developments such as the tension between the United States and North Korea as well as market concerns on the current account deficit amid a surge in the importation of capital goods due to the government’s plan to ramp up infrastructure spending.