THE Philippine manufacturing sector extended a recovery in June amid stronger demand even as earlier cost increases continued to weigh on sentiment, S&P Global said on Wednesday.
S&P’s Philippines Manufacturing Purchasing Managers’ Index (PMI) inched up to 50.9 in June from 50.8 in May, marking a second consecutive month above the 50-point threshold separating expansion from contraction.
“June data showed a continued improvement in the health of the Filipino manufacturing sector,” S&P said.
Maryam Baluch, economist at S&P Global Market Intelligence, said the June PMI result built on May’s “tentative recovery” following disruptions caused by the war in the Middle East.
Growth in new business supported the PMI gain and manufacturers also raised output for a second straight month, although growth eased from May’s pace.
Purchasing activity also rebounded amid new orders, signs of reduced supply chain disruptions, stable jobs and an easing of inflationary pressures.
Confidence levels, however, slumped to a five-month low.
“[Th]e impact of previous hikes in costs on margins weighed on output growth forecasts for the year ahead,” S&P said.
“Although companies remained optimistic on balance, citing hopes of improved demand, plans to introduce new products, increased marketing, and expansion into new markets, confidence levels fell to their lowest since January,” it added.
S&P noted that both new orders and production — the two largest PMI components — remained positive for a second consecutive month. But while growth in new orders strengthened slightly, that for output eased.
Growth in new orders — strengthened by underlying trends and new clients — was said to have supported increased output. A decline in export orders also eased considerably, reducing the drag from weaker overseas demand on overall order books.
“Encouraged by sustained growth in new orders, Filipino manufacturers raised their purchases of additional raw materials and semi-finished items for the first time in four months,” S&P said, but noted that rise was marginal.
“Renewed buying activity helped manufacturers across the Philippines to broadly maintain their inventories of inputs,” it added.
S&P also pointed to improving supply chain conditions as supplier delivery times lengthened at the slowest pace since December last year.
Staffing levels, meanwhile, were broadly unchanged in June after the job shedding recorded in April and May. Backlogs also accumulated, which Baluch said could lead to stronger hiring.
Inflationary pressures, meanwhile, moderated, offering some relief after elevated cost increases in previous months.
S&P Global said input costs rose at the weakest pace in the current four-month sequence of increases and were also historically subdued. Companies that reported higher costs mainly attributed these to rising prices of raw materials.
Manufacturers also continued to raise selling prices, although output price inflation eased and remained slightly below the long-run survey average.
Despite the improvement in demand and easing inflation, firms turned less optimistic about the year ahead.
However, sharp cost increases in two months prior affected sentiment and Baluch said that while the manufacturing sector as a whole had gained “traction, firms are cautious regarding the outlook.”
Wage hike to have an impact?
As this developed, the Federation of Philippine Industries (FPI) on Wednesday said the June PMI uptick showed that the domestic manufacturing sector “can still grow under pressure.”
“However, sustaining that growth means supporting workers while preserving businesses’ ability to invest, employ, and compete,” FPI Chairman Elizabeth Lee said.
“We cannot treat one factor in isolation,” she continued.
Noting the finding that sentiment remained low, Lee warned of the likely impact of the recently approved P85 daily minimum wage increase for Metro Manila workers.
“We recognize the legitimate basis for the wage adjustment: the cost of living for workers has genuinely risen, and the wage board acted within its mandate,” she said.
“At the same time, this increase compounds with other pressures already weighing on manufacturers this year — elevated energy and logistics costs, tighter financing amid continued BSP (Bangko Sentral ng Pilipinas) monetary policy, and global trade uncertainty.”
She welcomed the staggered implementation of the wage hike and urged “continued dialogue grounded in data, mindful of regional differences, and attentive to employment impact.”
The Philippine Chamber of Commerce and Industry (PCCI) also said that any wage hike should take companies’ capacity to pay into account.
PCCI President Ferdinand Ferrer said that wage increases, when not accompanied by productivity gains and reductions in the cost of doing business, risk fueling inflation, weakening competitiveness and discouraging investments.
“More than wage increases, we hope that our government will address the growing inflation — lowering the cost of basic commodities, transportation, gasoline and other necessities — so that gains will benefit all Filipinos and not only selected sectors,” he added.
