The Philippine manufacturing sector posted sustained modest improvement in operating conditions in August as output and new orders recorded stronger upticks midway through the third quarter, a new S&P Global report said.

The headline S&P Global Philippines Manufacturing PMI — a composite indicator of manufacturing performance — registered at 51.2 in August, unchanged from July.

The health of the domestic manufacturing sector has now strengthened in successive months for a year, though the latest data signaled only a modest improvement.

The accelerated growth in output and new orders last month was backed by improving demand trends as Filipino goods producers recorded the strongest rise in new orders in three months.

“However, demand from foreign customers faltered in August, as new exports sales fell for the first time since the start of the year. The data thus [suggest] that demand was domestically driven,” said the report.

Stronger increase in output

The overall growth in new orders supported a stronger increase in output during August, the rate of this growth quickening from July’s four-month low.

Expansion in business requirements supported firms’ decisions to increase purchasing in August, but the rate of increase softened to a five-month low and was modest overall.

On buying activity, purchasing slowed in August to reflect a softer buildup of pre-production inventories held by manufacturers.

The upturn was slight and the weakest in the current six-month period of accumulation.

Meanwhile, post-production inventories were depleted in August, the first downtick noted since February followed five consecutive months of stock-building.

Moreover, employment was down in August, a reversal of the acceleration seen in July.

Contractions

Contractions have now been noted in three of the past four survey periods; the way goods producers are able to complete workloads efficiently despite fewer workers highlighted a sufficiency in capacity.

On a positive note, inflationary pressures were curbed further. Input costs rose moderately during the latest survey period.

Meanwhile, selling prices for goods were raised at a softer and slighter pace, indicating that firms are in part absorbing costs in a bid to boost sales and remain competitive.

Unfortunately, firms registered a further lengthening of lead times for inputs received from suppliers. Vendor performance deteriorated for a fourth straight month, but the latest incidence of delays was the least pronounced since May, said the report.

Finally, expectations in the Filipino manufacturing sector point to further expansions in output in the coming 12 months.

However, manufacturers’ level of confidence has dipped to a four-month low, suggesting more modest production gains are anticipated compared to those seen in July.