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Manufacturing plunges in Aug due to ECQ in NCR

  • The Philippine manufacturing sector contracted sharply in August 2021 as Metro Manila factories and businesses closed due to the reintroduction of the enhanced community quarantine
  • The Philippine Purchasing Managers’ Index fell sharply from 50.4 in July to 46.4 in August, the steepest contraction since May 2020
  • Virus-related restrictions weighed heavily on lead times with port congestions and material shortages again a key theme
  • Delivery times lengthened at the most marked rate since August 2020 and were among the longest in the over five-and-a-half-year history of the survey

The Philippine manufacturing sector contracted sharply in August 2021 as Metro Manila factories and businesses were forced to close with the re-introduction of the enhanced community quarantine (ECQ) in one of the country’s largest manufacturing regions.

The Philippine Purchasing Managers’ Index fell sharply from 50.4 in July to 46.4 in August, registering below the 50.0 no-change threshold that separates expansion from contraction.

The latest decline indicated a renewed contraction in operating conditions in the Philippine manufacturing sector, and was the steepest since May 2020, according to the latest survey of London-based IHS Markit.

“With the announcement of tightening ECQ measures in early August, the latest contraction in operating conditions in the Philippines manufacturing sector came as no surprise. Factories and their clients in the Metro Manila area once again paused their production lines in a bid to curb the spread of the new Delta variant,” IHS Markit economist Shreeya Patel said in a statement.

Consequently, all five of the PMI components worsened, or fell deeper into contraction territory, with the PMI at a 15-month low in August, Patel noted.

Production volumes fell for the fifth month in a row, with the rate of decline the fourth quickest in the series history. IHS Markit said the contraction was linked to the third wave of COVID-19 cases and the subsequent tightening of restrictions which led to factory and business closures during the month.

Customer demand also fell sharply with the volume of new orders declining at one of the quickest rates in the series history.

Tighter restrictions on travel and the closure of businesses led clients to curb orders.

Weak domestic sales were accompanied by a renewed contraction in foreign demand. Exports fell at the quickest rate since July 2020.

Lower output requirements led to sharp declines in purchasing activity as firms looked to recover some costs and restructure stocks in line with weak demand. As a result, inventories of pre-production goods fell, although only moderately.

Tighter measures, port congestions and supplier shortages led to a sharp deterioration in supplier performance.

Delivery times lengthened at the most marked rate since August 2020 and were among the lengthiest in the over five-and-a-half-year history of the survey.

Employment levels at Filipino goods producers, meanwhile, fell at a sharp and accelerated pace in August. This was largely attributed to factory shutdowns which meant employees were unable to work, leading to reports of resignations and layoffs.

On the other hand, the relatively weak demand environment combined with sufficient capacity allowed firms to clear their backlogs and at an unchanged rate to that seen in July.

Global raw material shortages and delivery delays also continued to feed through in the form of higher input prices. Average cost burdens rose for the sixteenth month in a row, and with a rate of inflation that was sharp by historical standards. That said, there were signs of moderation with costs rising at the softest pace in seven months.

Firms sought to pass on part of the burden by raising their selling charges. Similar to the trend for input costs, the rate at which manufacturers increased their charges softened during the month.

Meanwhile, firms’ expectations surrounding output levels over the next 12 months fell to a four-month low in August, though still remained firmly in positive territory.

Vaccination efforts fueled hopes of a return to normality, although some firms recorded uncertainty surrounding the longer term implications of COVID-19.

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