By Aubrey Rose A. Inosante, Reporter
Philippine factory activity improved in December, rebounding from the slump in November amid a rise in new orders and softer decline in production.
S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) expanded to 50.2 in December, a turnaround from November’s 47.4 which was the “strongest deterioration” in over four years.
The headline PMI is a composite indicator of manufacturing performance. A PMI reading below 50 shows a deterioration in operating conditions, while a reading above 50 denotes better operating conditions from the preceding month.
December saw the highest PMI in four months or since the 50.8 reading in August.
In a report on Friday, S&P Global said the local manufacturing sector closed the fourth quarter showing early signs of recovery, marking a slight improvement after months of “solid deterioration.”
“New order volumes rose for the first time in four months, which helped partly ease the ongoing downturn in production,” Maryam Baluch, economist at S&P Global Market Intelligence, said.
S&P Global said the rise in new orders in December snapped the three-month contraction, but the pace of increase remains modest.
However, overseas demand worsened in December, with fewer new export orders weighed the rise in overall sales.
“While the modest rise in new orders led to a softer fall in production levels, it was unable to reverse the downturn. Output fell moderately in December,” it said.
S&P Global said the drop in output led to four consecutive months of decline, the longest since 2021.
Meanwhile, the higher intake in new orders led manufacturing firms to raise their purchasing activity, the first time in three months and at the fastest pace since August.
“Fuelled by this positive direction, companies increased their purchasing activity for the first time since September, while the labor market showed signs of stabilizing,” Ms. Baluch said.
This allowed firms to better manage their inventory levels.
“After a sharp depletion in November, holdings of pre-production items were unchanged in December. Additionally, stocks of finished goods rose following a strong decline in November. Firms reportedly built up post-production inventories in anticipation of future demand,” S&P Global said.
According to the report, manufacturers reduced staffing for the second consecutive month, but at a weaker rate than in November.
“Some firms reduced workforce numbers in response to declining production requirements, but others increased staffing levels amid greater new order inflows and anticipations of improving demand conditions in the coming months,” S&P Global said.
Operating expenses slightly increased in December, driven by higher material prices that raised 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 firms indicated they passed higher raw material costs on to customers,” it said.
At the same time, firms also reported longer input lead times in December, reversing the gains from November, due to port congestion and bad weather.
“With new orders rising while both production and employment remained in contraction, companies experienced a higher volume of requests for goods than they could fulfill. Consequently, backlogs of work increased further in December,” S&P Global said.
Despite this, manufacturers anticipate output to pick up over the next 12 months, along with upcoming projects, the launch of new product lines, and business expansion plans.
However, S&P Global noted that overall sentiment fell from November’s recent 12-month high.
“That said, the improvement was tepid across the sector, and its sustainability will largely depend on whether demand can be maintained and further bolstered, bringing growth back to production,” Ms. Baluch said.
She noted the sector faces headwinds from “sharply declining export market conditions, which are limiting the potential for broader expansion.”
“Consequently, at present, the manufacturing sector’s growth is primarily being driven by domestic demand, with external markets offering little support,” Ms. Baluch added.
