Analyzing the Philippines’ February Merchandise Trade: Unveiling the Impact of Statistical Base Effects on a 'Growth' Rebound

 

Facts are stubborn things, but statistics are pliable—Mark Twain

 

In this issue

Analyzing the Philippines’ February Merchandise Trade: Unveiling the Impact of Statistical Base Effects on a 'Growth' Rebound

I. Unveiling the Statistical Mirage Behind Merchandise Trade Growth

II. Export Boom? Semiconductor Up YoY but on a Downslide while Agro-Based and EDP Exports Rebound

III. Import Trends: Capital, Consumer, and Raw Materials Up YoY, Yet in Downtrend—Where Are the Investments?

IV. A Revival of the Domestic Manufacturing Sector?

V. Private Sector S&P PMI Survey Diverge from the PSA; Rising USD Peso Points to Risks of Stagflation

 

Analyzing the Philippines’ February Merchandise Trade: Unveiling the Impact of Statistical Base Effects on a 'Growth' Rebound

 

Government and media pounced on the positive YoY sign on Philippine Merchandise Trade, interpreting it as "growth."  However, filtering noise from signal tell us otherwise.

 

I. Unveiling the Statistical Mirage Behind Merchandise Trade Growth

 

Businessworld, April 12: Preliminary data from the Philippine Statistics Authority (PSA) showed the country’s trade-in-goods balance — the difference between exports and imports — stood at a $3.65-billion deficit in February, slipping by 6% from the $3.88-billion gap in February last year. Month on month, the trade gap also narrowed from the revised $4.39 billion in January. The trade deficit in February was the smallest in five months or since the $3.55-billion deficit in September last year. Outbound sale of goods expanded for the second straight month by 15.7% annually to $5.91 billion in February. This was faster than the revised 9.1% growth in January and a turnaround from the 18.3% decline in February last year. This was the quickest exports growth in 16 months or since the 20.6% surge in October 2022. Meanwhile, imports rose by 6.3% to $9.55 billion in February, ending two months of decline. This was a turnaround from the revised 6.1% contraction in January and the 11.8% decline in February 2023. Imports growth was also the fastest in 16 months or since 7.7% in October 2022. (italics mine)

 

YoY February exports grew by 15.7%, while imports increased by 6.34%, and total external trade expanded by 9.74%. As a result, the trade deficit improved by 6%.

 

Great news, right?

 

That's if you discount the overall trend.

 

In reality, February's boost was a mirage—a product of the statistical "low" base effect.

Figure 1

 

From a noise versus signal standpoint, February's USD performance only reinforced the downside drift of the nation's trend in external trade. (Figure 1, topmost graph)

 

It is no coincidence that the fall in external trade deficit has resonated with the easing of the fiscal deficit manifesting the "twin deficits."  (Figure 1, middle window)

 

The easing of public spending has reduced the "crowding effect," freeing up more resources for the market economy's use. (Figure 1, lowest chart)

 

Still, despite the imbalances from the structural shift in bank lending operations, the declining import trend demonstrates mounting strains on consumers from inflation.

 

However, both deficits translate to an economy spending more than it produces, thereby requiring borrowing to fund the savings-investment gap.

 

II. Export Boom? Semiconductor Up YoY but on a Downslide while Agro-Based and EDP Exports Rebound

 

Export boom?

Figure 2

 

Though semiconductor exports soared by 31.9% in February, export volume in USD has been down 2.14% MoM. It has been trending down since September 2023/October 2022. (Figure 2, topmost image)

 

The microchip % share of exports accounted for 44.8% in February 2024, slightly lower than 45.5% in January and substantially higher than 39.3% from the same month a year ago.

 

What other sectors grew in volume and in percentage?

 

Agro-based exports jumped 24.1% YoY, accounting for 7.2% of the total share. (Figure 2, middle diagram)

 

Electronic Data Processing exports also vaulted by 23.1% YoY, with a 7.5% share of the total. (Figure 2, lowest graph)

 

Electronic products (which include the semiconductor and EDP sectors) soared by 27%, accounting for 58% share of the total.

 

The thing is, only a handful of sectors benefited from February's export growth.

III. Import Trends: Capital, Consumer, and Raw Materials Up YoY, Yet in Downtrend—Where Are the Investments?

 

How about imports?

 

Last February, capital goods imports fell by only 3.4% YoY, while consumer goods imports grew by 9.2%.

Figure 3

 

But both sectors suffered a plunge in USD volume of 13.6% and 16.3% MoM, and they have shown signs of further weakening (Figure 3, topmost image)

 

So based on capital goods imports, the avalanche of news headlines about the proposed massive investment flows from a peripatetic leadership selling politically related investments to the US and their allies have yet to happen.

 

Still, the government reported that Foreign Direct Investment (FDI) flows almost "doubled" in January 2024, mainly from a surge of debt flows. Debt flows accounted for 90% of the FDI. Investments, eh?

 

Curiously, despite the wonderful headlines predicated on YoY, the FDI trend in million USD remains southbound. (Figure 3, middle visual)

 

And this bifurcation applies to raw materials imports, which expanded by 11.8%, despite the downtrend since 3Q 2022. Raw material imports serve as a pulse on the manufacturing sector. (Figure 3, lowest chart)

 

IV. A Revival of the Domestic Manufacturing Sector?

 

Yet, authorities tell us that growth in the manufacturing sector has been picking up.

Figure 4

 

First, the sector's bank credit growth more than doubled from 2% in January to 5.9% in February. The sector's bank credit growth has dovetailed the Producers Price Index (PPI) or "measure of change in the prices of products or commodities produced by domestic manufacturers and sold at farm gate prices to wholesale/other consumers in the domestic market." (PSA, Openstat)

 

Will the PPI follow the rebound in bank credit?

 

Second, manufacturing volume and value were up 8.9% and 7.5% in February 2024, even as net sales in volume and value contracted by 0.5% and 1.7%.

 

Generally, producers have been ramping up in production despite slower sales—implying substantial inventory accumulation.

 

V. Private Sector S&P PMI Survey Diverge from the PSA; Rising USD Peso Points to Risks of Stagflation

 

Figure 5

 

But, the S&P PMI survey for March diverged from the PSA:

 

The latest PMI® data by S&P Global indicated only a modest improvement in the health of the Filipino manufacturing sector during March. Though the pace of expansion was largely sustained from the previous survey period, growth in new orders remained historically subdued. Furthermore, production lapsed back into contraction for the first time since July 2022 amid material shortages. Companies raised their employment and buying activity at stronger rates and renewed their efforts to replenish inventories. That said, the degree of confidence in the outlook for output over the coming year dropped to a near four-year low. In terms of prices, the rate of input cost inflation softened to the weakest since October 2020. Additionally, charges levied for Filipino manufactured goods fell for the first time in nearly four years. (SPI Global, April 2024)

 

Both indicators shared the replenishment of inventories and the account of disinflation via the PPI, but instead of output growth, the SPI indicated a production lapse.

 

The Philippine PMI appears to have been plagued by a "rounding top." (Figure 5, topmost image)

 

In summary, government data points to an upturn in the manufacturing sector in the GDP, which diverges from the SPI’s outlook.

 

Dialing back to imports, only one major category registered increases in both YoY and MoM volume: fuel imports, which were up by 8.3% YoY and 28.4% MoM, driven by rising oil prices. (Figure 5, middle chart)

 

As noted above, due to the "low" base of 2023, government data recorded growth—a chimera.

 

However, the general trend for merchandise trade exhibits ongoing weakness in capital goods, consumers, and manufacturing, along with rising risks of stagflation.

 

The rising US dollar-Philippine peso $USDPHP suggests that the easing of this deficit (and the twin deficits) must be ephemeral. (Figure 5, lowest diagram)

 

___

References:

 

S&P Global Philippines Manufacturing PMI Filipino manufacturing output slides into contraction for the first time since July 2022, April 1, 2024, spglobal.com

 

 

 

The Jump in February’s Philippine Employment Rate was all about Part-Time Jobs! BSP’s Consumer Sentiment: Stagflation Ahoy!

 By contrast, in an inflationary environment, whether it’s 10-15% (the real number in the US right now), or 100% per year as in countries like Venezuela and Zimbabwe, or the 2% the Fed advocates, currency debasement discourages people from saving. And if you don’t save, you can’t build capital. And if you don’t build capital, you can’t make investments and you can’t improve the standard of living—Doug Casey

 

In this issue

The Jump in February’s Philippine Employment Rate was all about Part-Time Jobs! BSP’s Consumer Sentiment: Stagflation Ahoy!

I. BSP Consumer Survey: Inflation Adversely Impacts the Middle- and Lower-Class

II. Consumers Magnify Balance Sheet Leverage in February; Bank Total Loans Bounced

III. Consumer Sentiment: "Stagflation Ahoy!"

IV. Part-Time Jobs! The Jump in February’s Philippine Employment Rate was all about Part-Time Jobs!

 

The Jump in February’s Philippine Employment Rate was all about Part-Time Jobs! BSP’s Consumer Sentiment: Stagflation Ahoy!

The BSP's survey exposes the weakening of Filipino consumers from inflation, as part-time jobs constituted the 'strong' growth of the Philippine labor market last February.

 

I. BSP Survey: Inflation Adversely Impacts Middle- and Lower-Class Consumers

Figure 1

 

The latest BSP survey on consumer sentiment suggests an improvement in Q1 2024 "brought about by their expectations of: (a) additional and higher income, (b) availability of more jobs and permanent employment, and (c) additional working family members."

 

But consumers were "less optimistic for Q2 2024 and the next 12 months...in anticipation of: (a) faster increase in the prices of goods, (b) fewer available jobs, and (c) lower income."

 

The other notes included: (bold original)

 

-Consumers are less hesitant about buying big-ticket items in Q1 2024 and the next 12 months.

 

-The percentage of households with loans and savings increases in Q1 2024. The Q1 2024 survey results showed that 24.9 percent of households availed of a loan in the last 12 months, higher than the 22.9 percent recorded in Q4 2023…

 

-Consumers expect higher interest, inflation and unemployment rates, and a weaker peso in Q1 and Q2 2024.  

 

First, the BSP survey reveals that since peaking in the 1H 2022, consumer expectations have been eroding, with sporadic bounces in the interim. (Figure 1, topmost image)

 

Next, fascinatingly, the results of the BSP's survey were drawn from a distribution across the population, with the high-income group (Php 30,000 and above) comprising 38.1% of the sample size, the middle-income group (Php 10,000-29,999) comprising 38%, and the low-income group (below Php 10,000) comprising 23.8%. (Figure 1, middle diagram)

 

Does this distribution accurately represent the Philippine population, or does it skew towards favoring the views of the high-income group?

 

Third, does this also mean that, despite prospects like higher inflation, interest rates, and unemployment rates, consumers would further increase their balance sheet leverage to purchase big-ticket items?

 

In any case, 13% of the surveyed population perceived it as a 'good time to buy' a motor vehicle, higher than the 8.5% reported in Q1 2023 and 9.4% in Q4 2023.

 

But motor vehicle sales rose by 19% from 60,404 in the first two months of 2023 to 72,132 in 2024. This growth was supported by a 19% surge in Universal Commercial Bank auto loans last February.  (Table 6)

 

Since the CAMPI motor vehicle sales data includes trucks for business purposes, it doesn't distinguish the extent of consumer spending specifically on automobiles. 

Nonetheless, loan activities help reveal the extent of demonstrated preferences by consumers.

 

In any event, motor vehicle sales appear to be plagued by a bearish "rising wedge." (Figure 1, lowest chart)

 

II. Consumers Magnify Balance Sheet Leverage in February; Bank Total Loans Bounced

Figure 2

 

Banks continue to fuel consumer spending, which has been on a fiery streak.

 

Aside from auto loans, Universal Commercial Bank credit card loans remain brisk, up by 30.11% in February—representing the seventh consecutive month of over 30% growth—to a record Php 738 billion. (Figure 2, topmost chart)

 

Salary loans also reached an all-time high of Php 141.9 billion, with their growth rate increasing by 16% last February. The growth of salary loans year-over-year has closely tracked fluctuations in the Consumer Price Index (CPI). (Figure 2, middle window)

 

The key segments of consumer lending etched record highs last February. (Figure 2, lowest graph)

Figure 3

Although the production side of Universal Commercial Bank's loan portfolio accelerated last February, consumers remain the focal point for bank lending.

 

The pace of industry loan growth increased from 5.85% in January 2024 to 6.85% in February. After consumer loans amounting to Php 262.2 billion, lending to the real estate sector, totaling Php 246.4 billion, registered the largest peso growth year-over-year. (Figure 3, topmost image)

 

The upturn in the credit portfolio of the production side appears to coincide with the increased optimism of the business sector in Q2 2024, according to the BSP.

 

Nonetheless, the portion of consumer loans (excluding real estate consumer lending) continues to swell to 11.6% relative to the diminishing share of industry loans. (Figure 3, middle pane)

 

The banking system's lending bias towards consumption further solidifies the structural aspect of inflation. In other words, a minority of consumers—with access to the formal credit system—continue to amplify their leverage to bridge the gap resulting from the reduced purchasing power of their income and savings.

 

Balance sheet leveraging is likely also occurring for low-end consumers through the informal credit system.

 

As a result, consumers are gambling with their balance sheets despite the heightened risks of higher inflation, interest rates, and increased unemployment.

 

III. Consumer Sentiment: "Stagflation Ahoy!"

 

The BSP and economic authorities say that rising rates or tightening are having an effect on the economy. If so, why is systemic leverage accelerating? 

 

Total bank loans (UC, thrift, digital and rural banks plus public debt) grew by 9.94% in February to an all-time high of Php 27.413 trillion or about 113% of the Nominal GDP.  And this excludes debt from the bond markets, FDI flows, shadow banks, and informal finance. (Figure 3, lowest graph)

Figure 4

 

Coincidentally, while the number of people in the Philippines who said they'd increase their allocations to savings improved in Q1 2024 to 31.8%, it represented a bounce from Q4 2023's 28.6%—the lowest since 2019—with the lowest income segment suffering the most (Table 10). Savers are being penalized as household balance sheets expand. (Figure 4: topmost table)

 

Interestingly, consumers acted as 'analysts' in anticipation of a 'weaker peso.'

 

Or could this sentiment be attributed to a bias resulting from extensive household exposure to Overseas Filipino Workers (OFWs)? The BSP survey noted that 94.7% of households received remittances from OFWs, with OFWs in the households accounting for 6.6% of the sampled population (Tables 13 and 14).

 

The scourge of inflation has clearly been adversely impacting consumers, particularly those in the middle-and lower-income classes, even with a survey biased in favor of the higher-income class.

 

The high GDP rates conceal the redistribution effects of inflation, which favor the political class and the elites while diminishing the standard of living of the average citizenry.

 

In essence, consumers are saying "Stagflation Ahoy!"

IV. Part-Time Jobs! The Jump in February’s Philippine Employment Rate was all about Part-Time Jobs!

 

Inquirer.net, April 11, 2024: The number of jobless Filipinos went down in February to 1.8 million, from 2.15 million in January, the Philippine Statistics Authority reported Thursday. That brought the country’s unemployment rate to 3.5 percent, lower than the 4.5 percent in the preceding month.  At the same time, 6.08 million Filipinos were underemployed in February, representing those who sought additional jobs or working hours to augment their income. That was lower than the 6.39 million underemployed persons in January.

 

The government perceives the labor force as operating similarly to the stock market, characterized by sharp volatility.

 

It appears that employers can hire and fire with diminished influence from labor regulations.

Following a record employment rate in December and its sharp drop in January, the employment rate surged from 95.5% to 96.5% in February.

 

This marked the second-steepest monthly employment gain since August 2023, aided by a bounce in the labor participation rate from 61.1% in January to 64.8% in February. (Figure 4: middle graph)

 

Alternatively, the gains stemmed from the plunge in the non-labor force population. (Figure 4: lowest image)

 

On a month-on-month basis:

 

-The population contracted by 348,000

-The labor force surged by 2.65 million

-The non-labor force population shrunk by 3 million

 

As a result, the employed population grew by 3 million.

 

According to the Philippine Statistics Authority, persons not in the labor force are 'Persons 15 years old and over who are neither employed nor unemployed according to the definitions mentioned. Those not in the labor force are persons who are not looking for work because of reasons such as housekeeping, schooling, and permanent disability. Examples are housewives, students, persons with disabilities, or retired persons.'

 

By this definition, with the population slightly down, students, housewives, persons with disabilities, and retirees suddenly trooped into the labor force to secure jobs.

 

That's right. Like a switch, jobs are turned on and off based on surveys.

Figure 5

 

But there’s more.

 

While this data will serve as the foundation for GDP, it also reveals that a significant portion of February's job gains came from part-time jobs.

 

Part-time jobs jumped 25% MoM, increasing their share of the market from 27.8% in January to 32.6% in February. (Figure 5, upper chart)

 

On the other hand, full-time jobs slipped by 1.36% MoM, reducing their share of the employed population from 71.84% in January to 66.51% in February.

 

Bluntly, full-time jobs contracted by 450,000 while part-time jobs expanded by a whopping 3.19 million!

 

This distortion is evident even when looking at the PSA's spreadsheet! (Figure 5, lowest table)

 

So hidden beneath the headline is the fact that the shift from the non-labor force to the labor force was all about 'part-time' jobs!

 

Ironically, a media headline labeled this as 'better job quality.'

 

The government was not even transparent about it in their press releases.

 

Amazing.

 

It was a broad-based growth for the 'part-time' labor force.

Figure 6

The sectors with the largest labor force—agriculture (626K) and trade (1.6 million)—posted the most job gains.  (Figure 6, upper chart)

 

Other job-sensitive sectors like hotel & food services (325K), construction (231K), transportation (206K), and manufacturing (152K) also contributed to the growth in part-time jobs. (Figure 6, lower graph)

 

So, there you have it. The significance of 'part-time' jobs in contributing to consumption and GDP remains in the hands of statisticians.

 

Statistical accounts will likely depart from reality.

 

In turn, upside job volatility can turn into a downside gush.

 

That is, even the high-end consumers (in the BSP survey) seem to sense the fragility in the foundations of the incumbent job market.

 

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references

Bangko Sentral ng Pilipinas, CONSUMER EXPECTATIONS SURVEY REPORT 1st Quarter 2024 report, April 12, 2024 bsp.gov.ph