OFW Remittances, Merchandise Trade and Industrial Production (The Revenge of Economics)

The government released a raft of data last week.

Most were bad news. Because I’m in a rush, there won’t be lengthy elaborations

First the good news.

Personal remittances surged by 8.7% in July, which lifted year-to-date growth to 5.9%. Cash remittances posted a 7.1% increase for the same month and 5% in 7 months.

In 2016, personal remittances accounted for 14% of the Household Financial Consumption.

Remittances growth rates continue to drift incrementally lower to reflect on diminishing returns.

An uptick in remittances tells a vastly different story from that which has been propagated by the media and experts.

A real economic boom will induce more people to stay and work from HOME than suffer the social cost of being apart from the family.

Next, merchandise trade

July exports rebounded 10.4%.

However, imports contracted for the second straight month to post a -3.14% in July. Total July merchandise trade was up by a measly 2.25% yoy.

The big difference between July’s exports and imports helped reduce the 7-months trade deficit by 4.6% or from US$ 15.4 billion in 2016 to US$ 14.7 billion in 2017

Imports are supposed to reflect domestic demand. So what just happened?

And please do take note that the trend of growth rates of both exports and imports have been materially slowing down. Exports merely bounced off from the recent weakness.

Lastly, the PSA’s industrial production.

I talked about the ongoing weakness in the auto sector. I also discussed the continued softening of the cement industry.

The overall July industrial production index fell by -2%. Industrial production has peaked in December 2016 and steadily declined throughout 2017.

What’s striking has been the net sales value and volume which plummeted by -9% and -8% in July.

The negative net sales and volume seem to presage August’s performance.

Nikkei’s PMI seems to confirm the PSA’s revelation.

From the almost always bullish Markit on the Philippines August Production Index: (bold mine)

After a subdued start to the third quarter, the Philippines manufacturing economy lost further momentum in August. Growth rates in both output and new orders slowed noticeably from July and weighed on the PMI. That led to a fall in employment levels. On the price front, peso depreciation stoked further inflationary pressures. Encouragingly, business optimism remained elevated.

The seasonally adjusted Nikkei Philippines Manufacturing Purchasing Managers’ Index (PMI™) came in at 50.6 in August ─ the weakest reading in the survey history ─ down from 52.8 in July. The latest reading signalled only a marginal improvement in the health of the sector, contrasting with the solid growth seen in the first half of the year.

Signs of a softening in demand through the third quarter continued to emerge. There was a considerable slowdown in order book growth to a level well below the historical survey average.

The weakening was not limited to domestic markets: a fall in export sales was also responsible for the slower sales trend. The decline in new export orders was only the second in the 20-month survey history ─ and ended an 18-month expansion run. Firms noted that shortages of raw materials led them to turn away some overseas orders.

Manufacturing production increased further during August but at a noticeably slower rate (the weakest on record). Anecdotal evidence indicated that a lack of raw materials disrupted production schedules.

August’s data indicated an ongoing lack of pressure on capacity despite lower employment; backlogs of work declined for an eighteenth month, although the rate of contraction was slower than July.

So industrial production was BROADLY weaker (sales, export orders, production, employment and capacity utilization) in August. And exports will likely drop as well. Employment weakness can be seen in jobstreet’s manufacturing job openings. Curiously, credit growth has increased even as manufacturing output has been turning down. Where has the money been spent?

Interestingly, “optimism” is being challenged by economics.

Bottom line: Distort prices (by monetary inflation), prices get back at you!

The revenge of economics!