Manufacturing picks up as lockdowns ease

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The Philippine manufacturing sector posted an improvement in June as manufacturers raise output levels for the first time since February, the latest report by IHS Markit Philippines said.

However, the report released yesterday showed new orders continue to fall, although the rate of decline eased considerably, while job shedding accelerates to its quickest level in three months.

The IHS Markit Philippines’ manufacturing purchasing managers’ index rose from 40.1 in May to 49.7 in June.

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The report pointed out the figure for the month is just below the neutral 50 mark that separates expansion from contraction.

“The latest reading was the highest since February, and signalled a further movement toward stabilization in the Filipino goods-producing sector,” the report said.

“The headline reading was bolstered by the first expansion in output levels in four months, albeit one that was only marginal. Companies found that the relaxation of lockdown measures across much of the country allowed them to increase production, with many reopening for the first time since being shut down,” it added.

David Owen, economist at IHS Markit, said the change in the government’s rules to the general community quarantine helped the manufacturing sector make large strides towards stability in June.

“Most importantly, production was raised for the first time since before the lockdown which, while marginal overall, marked a significant milestone in the reopening of the sector,” he said.

However, he pointed out many firms did remain closed or operated at much lower capacity, suggesting that parts of the sector have some way to go to restore production to pre-pandemic levels.

“Demand also fell, although the rate of decline was far softer than in May. Firms have noticeably held back from hiring as a result of weak demand, as employment numbers dropped at the steepest rate since March,” Owen said.

The report said despite a return to output growth, job numbers continued to decline, with the rate of contraction quickening to the fastest seen since March.

“The sharper decline in workforces suggests that manufacturers may need to see a strong rebound in goods demand before job levels can expand,” Owen said.

“Signs from new orders and export orders data are encouraging, but the recovery may still be gradual as the pandemic continues and even accelerates in some regions,” he added.

The report said the year-ahead outlook for manufacturing output rose to its highest since February, with companies seeing greater reason for optimism as the government relaxed COVID-19 quarantine measures.

“Many firms cited hopes that this would help them regain customers and resume plans to develop new products,” it said.

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