Angelo Taningco
Economist, Treasury Group
The Philippine manufacturing sector expanded at its strongest pace since the start of the year in May as the Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI) climbed to a 5-month high of 54.3 for the month, based on the latest PMI report released by IHS Markit on 1 June.
Figure: Nikkei Philippines Manufacturing PMI
Jan. 2016 – May 2017
Source: Bloomberg, IHS Markit
The manufacturing PMI reading for May is one point higher than April with the monthly increase derived from bigger output volumes and inventories, more new orders, higher employment growth rate, and faster supplier delivery time. Greater client demand for manufactured items was cited as one of the drivers for more new orders and output produced, and we surmise healthy corporate earnings coupled with positive business sentiment were instrumental for the demand increase. Compared to the first four months of the year, the month of May exhibited the fastest growth on certain areas in the manufacturing sector, specifically, in production, input orders, and employment.
We computed the average manufacturing PMI for April and May at 53.8, which is 0.4 points more than the average for the first three months of the year. A further increase in manufacturing PMI this month would lead to a faster manufacturing expansion on average in the second quarter compared to the first quarter. We believe the manufacturing sector will likely sustain its relatively buoyant expansion for the month of June and for the second quarter, and could signal a more robust manufacturing gross value added (GVA) growth for the current quarter. The manufacturing sector is one of the major sectors of the Philippine economy, accounting for 20% of the overall economic size. In the first quarter, the sector’s GVA growth stood at 7.5% year-on-year (yoy), more than the real gross domestic product (GDP) growth of 6.4% yoy and we estimate its contribution to the first-quarter GDP growth to be at 1.9 percentage points.
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