PH Monday Macro: Downtrend in the manufacturing sector can mean slower growth
We previously covered in one of our reports that Philippine exported products are mainly manufactured goods at around 82%. We also talked about how this sector can give us some macro insights on the global economy.
Today, we will dive into one barometer that measures supply expectation and sentiment level of executives in the manufacturing sector of the Philippines through the Purchasing Managers’ Index (PMI).
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The PMI is a monthly survey of purchasing managers that asks a range of questions to quantify business sentiment. These questions would ask about supply orders, inventory, backlogs, costs, selling prices, and more.
On top of the objective inquiries, the survey would ask one subjective question: their expectations of overall output—higher, lower, or unchanged in a year.
Therefore, the PMI indicates not only the current business demand level from suppliers but also what these supply-side executives expect in the future. As such, the PMI is considered by many as a leading indicator.
The BSP publishes PMI data from Philippine Institute for Supply Management (PISM) and S&P Global every month.
While the PISM data is based on interviews with executives from top manufacturing companies in the Philippines, S&P Global data is based on surveys with specific questions which are weighted by new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%) and stocks of purchases (10%).
PISM and S&P quantify their data into an index, with figures recorded above 50 indicating that businesses are optimistic and the industry is expanding. In contrast, figures below 50 mean businesses are pessimistic, and the industry is contracting.
So, what is the current PMI of the Philippines? Take a look at the chart below.
Although the manufacturing S&P Global PMI ticked at 52.5 in March, indicating strong output, we could see from the chart that the index is slowing. This reflects the ongoing concern of businesses regarding current business output and expectations.
The index suggests a slowdown in the manufacturing industry, as such, a further contraction may occur in the near future. Economists expect global macroeconomic output to ebb if the trend continues.
Since the whole manufacturing sector contributes around grossly 17% of value added to the GDP, it is significant to the Philippine economy. On top of that, the sector employs almost 7.5% of the country’s total workforce.
Expansion or contraction in the manufacturing sector affects GDP and the unemployment rate. Any changes in the data may influence monetary and fiscal policy.
Since most Philippine exports are manufacturing goods and are part of a bigger economic ecosystem, the current trend of the PMI should be monitored moving forward. If the global economy as a whole decelerates, no doubt the Philippine economy will take a hit.
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“The Monday Macro Report”
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Hope you’ve found this week’s macro chart interesting and insightful.
Stay tuned for next week’s Monday Macro report!
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