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Thursday, August 17, 2017 | MANILA, PHILIPPINES
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   economic indicators

Date posted: Tuesday, September 13, 2016 | Manila, Philippines

BY R.R. Reusora, J.B. Gonzales, L.O. Pilar & M.T. Amoguis Researchers

July job, factory data overshadow weak external trade

FRESH government data point to a strong start for the economy this quarter, as solid domestic spending cushioned the slowdown in external trade.

Preliminary data from the Philippine Statistics Authority (PSA) show sustained improvement in manufacturing and jobs last July.

According to the July round of the PSA’s Labor Force Survey, the ranks of jobless Filipinos fell to an 11-year trough amid employment growth in services and industry.

The unemployment rate dropped from 6.5% in July last year to 5.4% in the same month this year, the lowest since April 2005 when the government adopted the International Labor Organization’s (ILO) definitions on employment and unemployment.

This means the ranks of the jobless fell from 2.7 million in July last year to 2.3 million this year, suggesting that more Filipinos have money in their pockets to fuel consumer spending, which comprises two-thirds of the economy.

“Our growing economy, which is largely driven by output expansion in the services and industry sectors, has created more and better jobs,” Socioeconomic Planning Secretary Ernesto M. Pernia said in a statement.

“The unemployment rate in July 2016, the lowest recorded for all July rounds in the past decade, increases the likelihood of achieving the Philippine Development Plan target of 6.5 to 6.7 percent for 2016,” added Mr. Pernia, who is director-general of the National Economic and Development Authority (NEDA).



QUALITY JOBS
The underemployment rate -- or those Filipinos who had jobs but were still looking for additional incomes -- likewise fell to 17.3% from 21% a year ago.

“The drop in the underemployment rate suggests an improvement in the quality of jobs in the country,” said Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines.

“The country’s unemployment rate could drop further given the government’s plan to accelerate public spending and speed-up infrastructure projects.”

The drop in both the unemployment and underemployment rates comes as the labor force participation rate increased to 63.3% from last year’s 62.9%, which means more Filipinos ages 15 years and over were looking for jobs amid the economy’s growth.

The “increasing labor force participation may have been due to perception of new opportunities with new government,” said Alvin P. Ang, economics professor at Ateneo de Manila University.

The government last month reported that the country’s gross domestic product (GDP) in the second quarter grew at a three-year record of 7%, driven by consumer spending and investments on the expenditures side, and by trade services and industry on the supply side.

This was reflected in the latest jobs numbers, as employment in industry improved to 17.8% this year from 16.5% a year ago, led by construction and manufacturing.

The government has been ramping up infrastructure spend, and is pinning its hopes on manufacturing to sustain GDP growth and bring down unemployment.

DRIVING MANUFACTURING
Also yesterday, the PSA reported that manufacturing sustained its growth in July on the strength of private consumption.

According to the agency’s Monthly Integrated Survey of Selected Industries, the volume of production index (VoPI) expanded by 10.1% year on year, the same pace as it was in June, but higher than the 0.1% recorded in July last year. Year-to-date, growth in the volume of manufactured goods averaged by 13.3%.

“The upbeat private consumption and investments continued to drive manufacturing growth,” NEDA’s Mr. Pernia said.

Donald G. Dee, chief operating officer and honorary chairman at the Philippine Chamber of Commerce and Industry (PCCI) agreed, saying growth in manufacturing remains domestically-driven amid weak demand from abroad.

The consumption-led growth of manufacturing can be seen from the double-digit expansion of food production, which comprises 45% of gross value added in manufacturing and is primarily geared towards domestic consumption.

Besides food, other drivers of the July VoPI were basic metals, transport equipment, rubber and plastic products, machinery except electrical, wood and wood products, tobacco products, beverages and chemical products.

The latest VoPI confirms the July forecast contained in Nikkei’s Philippines Manufacturing Purchasing Managers’ Index (PMI), which showed a seasonally adjusted score of 56.3 for the month. A PMI above 50 indicates an improvement in business conditions.



CAPITAL GOODS
“This growth shows that our economy has remained resilient to the continuing weakness in global demand for export-oriented manufactured goods caused by uncertainties such as low commodity prices and the EU debt crisis,” NEDA’s Mr. Pernia said.

True enough, the latest imports data showed that companies continued to expand their capacity. Capital goods, which accounts for a third of the country’s total imports bill last July, rose 23.1% year-on-year despite the 1.7% contraction in total imports that month.

“As we’re seeing imports contract year-on-year, but not because we’re scrimping on increasing our productive capacity as capital goods are up 23.1% for July and 53.8% year-to-date,” said Nicholas Antonio T. Mapa, research officer for market research and strategy at the Bank of the Philippine Islands.

“The slowdown was actually due to the 13.6% contraction in raw materials and intermediate goods. This was what I was expecting as most of these products are semi-finished goods that are used in the production of our exports. With exports generally weak (down 16 months) corporates refrained from bringing in more raw materials and simply opted to drawdown on existing inventory,” added Mr. Mapa.

The July imports bill brought the year-to-date figure to $45.473 billion, up by 14.4% from $39.762 billion in the same seven months of 2015, and twice the government’s forecast of 7% for the entire 2016.

“Global economic activity remains depressed with only the US among major markets poised for a decent rebound,” Mr. Mapa said.

ELECTRONICS EXPORTS
Even so, the latest exports data show that the US, which was the Philippines’ second-biggest market last July, bought 4.2% less products from a year ago.

All told, the Philippines’ merchandise exports shrank by 13% to $4.673 billion that month from $5.371 billion last year, marking the 16th straight month of contraction.

This brought the year-to-date figure to $31.505 billion, or 8.3% lower than the $34.372 billion sold in the same seven months of 2015.

The latest exports performance compares with the government’s growth target of 3% for 2016.

Comprising 51.4% of the total export revenue, electronic products remained the Philippines’ top dollar-earning commodity last July, but shipments contracted by 14.8% to $2.400 billion from $2.818 billion a year ago.

“We are still looking at 2-5% growth for the year,” Danilo C. Lachica, Semiconductor and Electronics Industries in the Philippines president, however said in an e-mail.

Sergio R. Ortiz-Luis, Jr., Philippine Exporters Confederation, Inc. (Philexport) president, agreed, citing “good signs” even as the “market has not been improving.”

“The fact that manufacturing increased [this means that] next month…there will be [an increase]. So maybe that’s a good indication that exports might be better for the month of August or September,” he said.

With exports down 8.3% and imports up 14.4% over the first seven months of this year, the country posted a $13.97-billion deficit in its balance of trade in goods for that period.

BPI’s Mr. Mapa however is not bothered by the “drag” that a trade deficit may pose for the third-quarter GDP, as he pointed to the surge in imports that is boosting the manufacturing sector’s productive capacity.

“This is great. The Philippines has generally been a chronic trade deficit country but the silver lining in the trade deficit we’re running is that the shortfall is due to a very aggressive build-up in capital goods. The capital goods build-up is in line with overall positive sentiment towards the economic fundamentals of the Philippines. In the medium term, this increased capacity will help drive economic activity further,” he said.

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