MANUFACTURERS are building up inventories in anticipation of stronger production, even as weak demand continues to pull down output and new orders, with factory activity contracting for a second straight month in October.
The Philippines Manufacturing Purchasing Managers’ Index (PMI), compiled by Standard and Poor’s (SandP) Global Market Intelligence, slipped to 49.1 in October from 49.6 in September. A reading below 50 indicates a deterioration in operating conditions.
The latest decline marked the third monthly contraction in the sector this year. SandP said manufacturers faced subdued demand at home and abroad, prompting them to cut production and purchasing activity.
Output and new orders both declined, although the fall in production eased slightly from September. The contraction in new orders, meanwhile, deepened, with companies reporting weaker demand from both domestic and foreign customers.
‘Some firms cited that weak demand and the current hot weather, linked by some panellists to El Niño, weighed on the two main contributors to the headline PMI index,’ SandP said.
The weakness in orders also prompted manufacturers to scale back purchases of materials and other inputs. Buying activity fell at its fastest pace in 11 months, even as the decline in new export orders eased and remained modest.
According to SandP Principal Economist Sin Jones, the sharper drop in purchasing activity and continued job losses showed that manufacturers remained cautious amid subdued demand.
But supply conditions offered little relief. Although the deterioration in supplier performance eased slightly in October, delivery times still lengthened for an 11th consecutive month.
Material shortages at suppliers were reported by some companies, resulting in delayed deliveries and changes to production schedules, SandP said.
Against this backdrop, manufacturers kept pre-production inventories broadly unchanged after reducing them in September. Stocks of finished goods, however, rose marginally for the first time in four months, as some firms anticipated a pickup in production.
That optimism was also reflected in business confidence, which rebounded to a near two-year high. Firms expected new projects and customers to support production growth over the next 12 months, Jones said.
But expectations have yet to translate into stronger orders or hiring. SandP reported that employment continued to decline, while manufacturers’ operating expenses and selling prices rose only modestly, largely because of higher material costs passed on to customers.
For his part, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said the expected El Niño conditions through early 2027 could add pressure on manufacturers, particularly through lower agricultural output and higher food and raw material prices.
He said record exports in recent months, driven by stronger demand for artificial intelligence-related electronics and products, could provide support for some local manufacturers and the broader economy.
On the other hand, Jones also warned that the Bangko Sentral ng Pilipinas’ latest 50-basis-point rate increase, which brought the policy rate to 5.5 percent, could weigh on demand and investment by raising borrowing costs.