Factory output falls for 7th straight month

by Lourdes O. Pilar, BusinessWorld, 9 Nov 2020

THE COUNTRY’S factory output contracted for the seventh straight month in September, the Philippine Statistics Authority (PSA) reported on Thursday.

Preliminary results of the PSA’s latest Monthly Integrated Survey of Selected Industries showed factory output, as measured by the Volume of Production Index (VoPI), contracted by 8.4% year on year in September.

This was slower than the revised nine-percent decline in August, but was faster than the 6.5% contraction in September 2019.

Year to date, the drop in factory output averaged 12.1% compared with the 8.9% slide in 2019’s comparable nine months.

The PSA attributed the slower decline to double-digit expansions observed in basic metals and food manufacturing with annual rate increases of 14.4% (from -2.6%) and 10.2% (from -3.3%), respectively.

The statistical agency also pointed to the “slower drop” in the indices of 10 industry groups compared with the previous month, such as beverages (-8% from -13%); textiles (-23.8% from -27.5%); footwear and wearing apparel (-33.8% from -36.4%); leather products (-55.2% from -55.8%); and wood and wood products (-36.3% from -37.6%).

Average capacity utilization — the extent to which industry resources are used in the production of goods — averaged 67.6% in September from 67.2% the previous month.

Only eight of the 20 sectors registered capacity utilization rates of at least 80%.

“September 2020 can be characterized as the month when the government has become more definite on what kind of quarantine policy will be implemented, COVID-19 (coronavirus disease 2019) cases have been becoming predictable, and the market has adjusted to the lingering effects of the pandemic. Hence, the degree of uncertainty has been reduced, although there are still some uncertainties,” Asian Institute of Management Economist John Paolo R. Rivera said in an e-mail.

“The availability of more definite information enabled manufacturers to be a bit more aggressive in spending for production. For example, urban areas like NCR (National Capital Region) are not moving in and out of different quarantine classifications anymore,” he added.

In a separate e-mail, Security Bank Corp. Chief Economist Robert Dan J. Roces noted improved activity brought by looser quarantine measures as shown by the slower decline in September.

“Taking a look at month-on-month changes, total manufacturing actually improved by 4% in September, or faster than the July-August rate of 2%, and suggesting improved economic activity likely on looser quarantine measures and better aggregate demand for the month. This also marks the fifth straight month of increased total production to reflect a gradual recovery scenario from the lows in April,” Mr. Roces said.

Barring “downside risks” such as a resurgence in COVID-19 cases and a re turn to strict lockdown, he said this recovery could likely be sustained until the end of the year.

“However, some sectors could recover slower than others while others improve, as there seems to be clustering in the meantime in terms of manufacturing output which also reflects the tenuous position of demand for certain products; this reflects a k-shaped trajectory of the gradual recovery prospects of the manufacturing sub-sectors,” he said.

For AIM’s Mr. Rivera: “[A]s the Philippine economy opens more industries and sectors [and] relaxes quarantine restrictions, hopefully more jobs will return… and demand will increase, thereby prompting for increased production activities especially in the coming holiday season.”

“We are on our way to recovery, albeit at a managed rate,” he said. —