Factory activity shrinks in September

Factory activity in the Philippines contracted for the first time in six months in September, as manufacturers saw a drop in output and new orders, S&P Global said on Wednesday.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) slipped to 49.9 in September from 50.8 in August.

A PMI reading below 50 shows a deterioration in operating conditions from the preceding month, while a reading above 50 denotes better operating conditions.

This was the second contraction this year, or since the 49.4 reading in March, as manufacturers cut output amid uncertainty surrounding US tariff policies at the time.

“The Philippines PMI survey data showed the manufacturing sector moving into negative territory at the end of the third quarter which, despite indicating only a fractional decline, has been highly unusual in the sector’s post-pandemic history,” David Owen, a senior economist at S&P Global Market Intelligence, said.

According to S&P Global, this was only the third time in over four years that the Philippines’ manufacturing PMI fell below 50.

“New orders and output decreased slightly, as firms mentioned a fall in client numbers and a modest drop in production from the suspension of rice imports,” Mr. Owen said.

Based on S&P Global’s Association of Southeast Asian Nations (ASEAN) data, the Philippines and Malaysia (49.8) both saw a contraction in factory activity in September.

Thailand recorded the highest PMI reading (54.6), followed by Myanmar (53.1), Indonesia (50.4), and Vietnam (50.4).

The Philippines’ PMI reading was also below the 51.6 average for ASEAN in September.

S&P said Philippine manufacturing firms saw a decline in sales for the first time since March.

“Weaker operating conditions were mainly attributed to a renewed (albeit marginal) drop in new order intakes in September,” it said. “However, order books with foreign clients continued to improve, signaling that the downturn was mainly centered on the domestic market.”

Manufacturers had to scale back production in September, ending three straight months of expansion.

S&P noted that firms surveyed said that aside from weak demand, adverse weather conditions and a ban on rice imports negatively affected output.

Despite this, goods producers increased purchases of raw materials and other components in September, although the rate of growth was slower than August.

“In contrast, post-production inventories declined due to lower output as well as some efforts to reduce backlogs of work, which dropped for the first time since April,” it said.

The survey data also showed a “subdued jobs market” in September.

Firms also saw higher input costs in September, which prompted them to marginally increase selling prices.

Also, S&P noted the level of business confidence was the second highest since November 2024. Most firms were generally confident of an improvement in sales in the next 12 months.

“However, with overall sentiment in the year-ahead remaining upbeat in September, and purchasing quantities increasing, manufacturers appear hopeful that the dip in sector performance is temporary,” Mr. Owen said.

Supply disruptions

Analysts said the decline in manufacturing activity can be attributed to supply disruptions caused by heavy rains and floods in September.

“This was mainly due to weak demand, high input costs, and supply disruptions, including weather-related issues,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said in a Viber message. “The sluggish factory orders and softer business sentiment reflect broader economic headwinds.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said manufacturing activity was affected by fewer working days due to bad weather, US tariffs and the so-called “ghost month.”

“(Higher tariffs) led to some wait-and-see attitude for some exports from the country and also exports in the global supply chains in terms of more cautious stance on their production and capacity,” he added.

“Temporary dip”

S&P Global Marketing Intelligence Economics Associate Director Jingyu Pan said the decline in Philippine factory output in September is only a “temporary dip.”

She said new export orders remained steady even as the US implemented the 19% tariff on Philippine-made goods on Aug. 7.

“If we take just a little bit of a step back and look at all the other PMI that has been released for the Asian region so far, you are certainly getting quite a bit of mixed picture… It’s undeniable that we’re still seeing some of this frontloading across the APAC region,” Ms. Pan said.

Ms. Pan also noted that recent flooding was a more immediate drag on production than the government-wide probe into anomalous flood control projects.

While manufacturers remain optimistic about a recovery over the next 12 months, Ms. Pan warned that the recent earthquake could be a “big factor” and could weigh on output in the coming months.

“Cebu is a manufacturing hub as well, and electronics sector has been a key sector over there. That could actually dampen the picture going forward based on initial potential assessment here,” she said, but will depend on the extent of infrastructure damage in the region. – Aubrey Rose A. Inosante, Reporter