Philippine factory activity strengthened to a five-month high in July as improving demand pushed manufacturers to increase production and new orders, although rising costs, supply disruptions, and weaker hiring continued to weigh on the sector’s recovery.

The Philippines Manufacturing Purchasing Managers’ Index (PMI) climbed to 51.8 in July from 50.9 in June, marking the third consecutive month of expansion and the strongest performance since February, according to S&P Global Market Intelligence.

Firmer demand conditions

The improvement was driven by firmer demand conditions, with manufacturers reporting the fastest increase in new orders in five months. Companies responded by expanding output at the quickest pace since February and increasing purchases of production inputs to support higher activity.

However, supply chain pressures returned during the month, with supplier delivery times worsening at the fastest pace since December 2024. Manufacturers linked the delays to disruptions caused by the ongoing Middle East conflict.

Workloads managed effectively

Firms also reduced input inventories as they worked to meet stronger demand, while finished goods stocks declined after a slight buildup in June. Despite lower inventories, businesses managed workloads effectively, with backlogs continuing to decline.

Labor conditions remained a concern, as employment fell moderately in July after holding steady in the previous month. Companies cited voluntary resignations and decisions not to immediately replace departing workers.

Cost pressures also intensified, with manufacturers reporting higher expenses due to geopolitical tensions.

“Qualitative evidence continued to show that the war in the Middle East was driving up costs, which firms then passed on to customers through higher charges for goods,” the report said.