Thursday, January 05, 2006

Hey, we are not sinking in some bottomless pit the way career pessimists would like us to believe!

If you think the country’s manufacturing sector is doing badly, think again. The latest monthly integrated survey of selected industries (MISSI) shows that the average capacity utilization of the manufacturing sector has reached 80.4 percent in October, the highest in the last four years. This could simply mean that factories are a little bit busier in the last quarter of the year, contrary to popular perceptions.

Hey, we are not sinking in some bottomless pit, the way career pessimists would like us to believe!

Certainly, this trend has something to do with the Christmas season. If one looks at the details, one could see food manufacturing as among those having the high average capacity utilization. Food manufacturers are among those that enjoyed higher production values, together with other industries including petroleum products, chemical products, electrical machinery, textiles, furniture and fixtures, beverages, rubber products, leather products, and miscellaneous manufactures.

In terms of sales value, food manufacturing also enjoyed double-digit growth rate in October, together with petroleum products, chemicals, basic metals, transport equipment, furniture and fixtures, and leather products.

However, it appears to be that the latest statistics is also part of an emerging trend. If one plots that average capacity utilization of industries over time, it would show that the figure has actually been creeping up since the last seven months. The major driver of this trend is the improving performances of food manufacturing, beverage, textiles, rubber products, chemical products, petroleum products, basic metals, electrical machinery, and miscellaneous manufactures. It appears to be a pretty broad-based trend so far.

In the last few months, there seems to be a perception that the country’s industrial sector has been on the slump particularly after the latest export figure declined by 3.2 percent. The real reason for this decline, however, is the shifting of the one Japanese company of its one-billion-a-year laptop export production facility in China while maintaining its microchip operations here in the country. Considering that electronics account for almost 60 percent of the country’s exports, a one billion-dollar difference would surely make a dent on the export growth figure. But it would appear that other products like control and instrumentation, medical and industrial instrumentation, other electronics, garments, wood manufactures, chemicals, machinery and transport equipment, processed food and beverages, and iron and steel were doing fairly in the export markets.

What drives factory managers to rev up factory activity? One factor could be that since January, manufacturing firms’ sales value has been growing at about 8 percent on average. That figure is not bad considering that inflation hovers only at 7 percent. The producer prices index which measures the average change over time in the selling prices received by factories for their products has been growing at double digit rates since April. Indeed, there seems to be some incentives for some industries to make their factories busy, the reason why the manufacturing sector in general grew by 5.4 percent in the last three quarters of the year.

Whether this level of performance, however, is making a difference is another matter. The October round of the Labor Force Survey indicates that the industry sector contributed only about 6,000 incremental jobs. In fact, the “wage and salary” component of the industry sector actually lost 36,000 jobs. What made up for the losses are “own account” industry workers—probably struggling entrepreneurs in small-scale mining and construction. Our own guess is that we would only see the manufacturing sector taking in lots of new workers once the average capacity utilization starts approaching 85 percent average. Sadly, that’s a long way to go.

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