By Aubrey Rose A. innocente, reporter
Philippine factory activity improved in December, helping it recover from a slowdown in November amid a rise in new orders and a soft decline in output.
The S&P Global Philippines Manufacturing Purchasing Managers' Index (PMI) rose to 50.2 in December, a change from November's 47.4, which was the “strongest decline” in four years.
The headline PMI is an overall indicator of manufacturing performance. PMI readings below 50 indicate a deterioration in operating conditions, while readings above 50 indicate improved operating conditions from the previous month.
December saw the highest PMI in four months or since August's reading of 50.8.
In a report on Friday, S&P Global said the local manufacturing sector showed early signs of recovery in the fourth quarter, marking a modest recovery after months of “solid decline”.
“The volume of new orders rose for the first time in four months, helping to partially offset the ongoing decline in output,” said Maryam Baloch, economist at S&P Global Market Intelligence.
S&P Global said a rise in new orders in December halted a three-month contraction, but the pace of growth remained modest.
However, overseas demand deteriorated in December, with fewer new export orders driving overall sales growth.
“Although a modest increase in new orders led to a slight decline in production levels, it was unable to reverse the slowdown. Output declined marginally in December,” it said.
The decline in output led to four consecutive months of decline, the longest decline since 2021, S&P Global said.
Meanwhile, manufacturing companies increased their purchasing activity on the back of a higher volume of new orders, the first in three months and the fastest pace since August.
“Driven by this positive direction, companies increased their purchasing activity for the first time since September, while the labor market showed signs of stabilization,” Ms Baloch said.
This allowed companies to better manage their inventory levels.
S&P Global said, “After a sharp decline in November, holdings of pre-production goods were unchanged in December. Additionally, finished goods stocks increased after a strong decline in November. Companies reportedly built post-production inventories in anticipation of future demand.”
According to the report, manufacturers reduced the number of employees for the second consecutive month, but at a lower rate than in November.
“Some companies reduced workforce numbers in response to declining production requirements, but others increased staffing levels amid new order flow and expectations of improving demand conditions in the coming months,” S&P Global said.
Operating expenses increased slightly in December, driven by higher material prices, which increased input costs. This is the weakest rate of inflation in the current 19-month period of rising costs.
“Meanwhile, the pace of output price inflation accelerated from November as many companies indicated they had passed on the burden of higher raw material costs to customers,” it said.
Additionally, companies also reported longer input lead times in December due to port congestion and bad weather, reversing gains compared to November.
S&P Global said, “With new orders rising, while both output and employment remained in contraction, companies experienced more volume of requests for goods than they could fulfill. As a result, the backlog of work increased further in December.”
Despite this, manufacturers are expected to increase production over the next 12 months along with upcoming projects, launches of new product lines and business expansion plans.
However, S&P Global noted overall sentiment declined from November's recent 12-month high.
“That said, the recovery across the sector was slow, and its sustainability will largely depend on whether demand can be sustained and driven forward, driving growth back into output,” Ms Baloch said.
He said the sector “faces headwinds from sharply deteriorating export market conditions, which are limiting prospects for wider expansion.”
“As a result, at present, manufacturing sector growth is being driven primarily by domestic demand, with external markets providing little support,” Ms Baloch said.