Factory activity shrinks as demand, output drop

DOMESTIC manufacturing conditions deteriorated in March with the Philippines purchasing managers' index (PMI) contracting for the first time in 19 months, S&P Global reported on Wednesday.

The headline PMI fell for a third straight month to 49.4 in March, down from 51.0 a month earlier and edging below the 50.0 threshold that separates growth from a decline.

The last time that a contraction was recorded was in August 2023 when the PMI hit 49.7. The lowest on record, meanwhile, is 31.6, posted in April 2020.

“The Filipino manufacturing sector indicated a renewed deterioration in operating conditions in March,” S&P Global Market Intelligence economist Maryam Baluch said.

“Furthermore, the health of the sector worsened at the strongest pace since August 2021,” she added.

In August 2021, the country's PMI plunged four points to 46.4 from 50.4 in July.

Production cut as orders drop

Manufacturers cut down on production in March, ending an 11-month expansion, as new sales continued to decline. Factory orders also fell, snapping an 18-month run of growth.

“Anecdotal evidence attributed this to increased competition and a fall in client numbers,” S&P Global said.

“A fresh drop in new orders from foreign customers was also recorded in March, despite the rate of contraction being only slight overall,” it added.

Foreign client demand was said to have faltered after three months of growth.

Manufacturers subsequently rethought their hiring needs and paused from adding manpower after a slight rise in February.

Unfinished work also fell after growing at the strongest pace in two years a month earlier, and survey respondents indicated that manpower was enough to address orders and complete pending tasks.

Despite the downturn, manufacturers remained optimistic about future production, with business sentiment rising to a four-month high.

Many firms continued purchasing raw materials and expanding inventories, indicating confidence in a rebound over the next 12 months.

“Optimism was reflected in firms' decisions to maintain their purchasing activity and build stocks,” Balich said.

“At the same time, inflationary pressures remained relatively contained and subdued in the context of the series history,” she added.

Buying activity rose for a 16th straight month and stocks continued to increase. Post-production inventories, meanwhile, were said to have grown at a “modest but historically solid rate.”

Higher input costs were driven by higher material prices and prompting companies to increase selling prices. Both cost pressures and output price increases, however, remained below historical averages, suggesting that inflationary pressures were not yet a major concern for manufacturers.

Producer prices up in Feb

As this developed, the Philippine Statistics Authority (PSA) on Wednesday reported that the producer price index (PPI) had grown for a second consecutive month in February.

The PPI, compared to the PMI that is a measure of the manufacturing sector's health, focuses on the change in prices at the factory level.

PPI growth edged up to 0.8 percent on an annual basis from 0.7 percent in January and also rebounded from the year-earlier 1.4-percent decline.

The expansion was “primarily due to the acceleration in the annual rate of the PPI for manufacture of coke and refined petroleum products industry division at 2.9 percent in February 2025 from 1.9 percent annual increase in January 2025,” the PSA said.

The sector had the fourth-highest weight in the computation of the PPI and accounted for 26.5 percent of the increase.

Other contributors were a slower contraction in the manufacture of transport equipment (-0.01 percent from -0.7 percent) and other nonmetallic mineral products (-1.7 percent from -3.4 percent).

Of the remaining 19 industry sectors, five experienced contractions while 14 posted growth.

Month on month, meanwhile, manufacturing PPI registered a slower decline of 0.2 percent from 0.4 percent a month and year earlier.

“The top contributor to the slower decline … was the manufacture of food products, which registered a monthly increase of 0.05 percent during the period from a 1.2 percent monthly decrement in January 2025,” the PSA said.

Also factoring in the month-on-month drop were a 0.2-percent rebound in manufacture of transport equipment (from -0.5 percent) and a narrower 0.1-percent drop for machinery and equipment except electrical (from -0.9 percent).

“These three industry divisions contributed 87.2 percent to the slower decline in the month-on-month growth rate of PPI for manufacturing in February 2025,” the PSA said.

Of the other 19 industry divisions, five posted improvements, 13 contracted and one was unchanged.