Data from market information provider S&P Global Philippines have shown that the local manufacturing sector suffered setbacks as domestic conditions stagnated in the past month with output falling and new orders slowing down despite inflation rates going steady at a modest pace.
Based on a S&P Global report, the purchasing managers’ index (PMI) for the sector dropped from 53.0 to 50.1 in May, just above the 50.0 threshold dividing a contraction from an expansion.
As an indicator of market conditions derived from surveys of private sector firms, the report spelled out that the PMI rebounded strongly in April after dropping to 49.4 in March, but the month of May saw the first decline in 19 months.
“The promising growth observed at the beginning of the second quarter signaled a notable cooling in May,” S&P Global Market Intelligence economist Maryam Baluch pointed out.
“While new orders continued to increase, they did so at a slower pace, overshadowed by contractions in other areas. Notably, output, employment, and the inventories of both purchases and finished goods all experienced fresh declines,” Baluch added.
Notably, she hinted on a downturn in demand from foreign buyers that also weighed on total sales.
“May’s output decline was the second in the last three months, it noted. While the drop was marginal overall, respondents said that softer demand conditions had weighed on production. New sales continued to grow, but the expansion weakened from April,” she noted.
Report analysis cited that Filipino manufacturers were said to have faced difficulties in international markets, with new export orders dropping after broadly steady sales in March and April. Although ‘fractional’, the rate of contraction was the sharpest since November last year.
“As global trade tensions escalate, the outlook for overseas demand appears increasingly precarious. The deceleration in new order growth also translated into a reduced input buying activity. Growth was slight and was the weakest in 18 months,” Baluch clarified.
Accordingly, manufacturers also gave mention to longer lead times in obtaining needed materials and supplies and despite a steady increase in purchasing activity, input supplies were depleted for the first time in three months.
A fresh decline in workforce numbers was also recorded in May, the first in four months. After being stable at the neutral level in March and April, the seasonally adjusted index was said to have entered contraction territory.
While relatively small, the rate of job losses in May was the highest in eleven months, which respondents attributed to voluntary departures and the failure to fill such positions.
Another reason for the increased backlogs was pinned on the lack of manpower which was recorded again as the accumulation rate was relatively low.
Meanwhile, the S&P Global report noticed inflationary pressures remaining “historically weak” despite signs of a slight intensification even as cost and output inflation pegged st the highest since January, indicating the pace of growth as “relatively modest overall.”
“On a brighter note, inflationary pressures remain modest and historically subdued, which could play an important role in supporting demand moving forward,” Baluch asserted.
“The stability of price pressures may also provide a necessary buffer against the challenges posed by a cooldown in new orders and external market uncertainties,” she further stated.