PHILIPPINE manufacturing activity rose to a five-month high in July with stronger demand boosting production and new order growth, S&P Global said on Monday.
The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) rose to 51.8 in July from 50.9 in June, the highest since February’s 54.6.
PMI readings above 50.0 point to growth while those below are a sign of a contraction.
“The second half of the year started on a solid footing for the Filipino manufacturing sector, as growth in new orders and production picked up to degrees not seen since February, before the war in the Middle East had broken out,” S&P said.
“Though the latest reading pointed to only a modest improvement in the health of the Filipino manufacturing sector, it marked a welcome shift from the subdued performance seen between March and June,” it added.
The improvement came as manufacturers reported “stronger underlying demand and new project wins,” which helped drive a sharp increase in new orders.
Growth in new sales was the fastest since February and exceeded the historical trend, S&P said, which in turn encouraged manufacturers to raise production.
Production growth also accelerated its strongest pace in five months and also exceeded its long-run average.
Purchasing activity increased as higher production requirements prompted firms to acquire more inputs, with the pace of purchasing growth quickening from June.
The improvement in demand, however, came alongside mounting supply-chain pressures.
“As manufacturers continued to face stretched supply chains and a renewed pick-up in cost pressures, inventories came under strain,” S&P Global economist Maryam Baluch said.
Supplier performance deteriorated sharply in July after broadly stabilizing in the previous month. The worsening of delivery times was said to be the most pronounced since December 2024.
“Firms commonly linked the latest lengthening in average lead times for inputs to the war in the Middle East and the impact on supply chain health,” S&P said.
With demand picking up while supply chains remained stretched, manufacturers turned to their existing inventories to meet new orders.
Both pre- and post-production stock levels fell in July while stocks of purchases declined solidly after remaining broadly stable a month earlier.
Finished goods inventories also decreased again after a modest buildup in June.
July’s manufacturing gain was also accompanied by renewed inflationary pressures, S&P said, with both the Input Price and Output Charge indexes moved back above their respective long-run averages after adjusting for seasonal factors.
Survey respondents continued to cite the war in the Middle East as a factor driving up costs.
“Qualitative evidence continued to show that the war in the Middle East was driving up costs, which firms then passed on to customers through higher charges for goods,” S&P said.
Moreover, the improvement in factory activity also has yet to translate into stronger employment.
Manufacturing employment fell moderately in July after staffing levels were unchanged in June.
“Firms attributed the fresh round of job losses to voluntary resignations and the non-replacement of leavers,” S&P said.
Baluch said the employment data suggested manufacturers remained cautious about expanding their workforces despite the improvement in demand and production.
“Despite the improvement in sector conditions, confidence remained historically muted,” she said.
“More notably, payroll numbers fell in July, suggesting that firms may need clearer signs of a sustained improvement in economic conditions before resuming hiring.”
Business confidence, meanwhile, recovered from a five-month low in June as manufacturers expected demand conditions to continue improving and support further production growth over the next 12 months.
However, S&P said the level of positive sentiment “remained among the weakest recorded over the past year and historically subdued, with ongoing geopolitical uncertainty and its impact on prices weighing on forecasts.”
