Manufacturing PMI falls to 4-year low

By Aubrey Rose A. Inosante, Reporter

PHILIPPINE FACTORY ACTIVITY fell sharply in November — the steepest drop in over four years — as output and new orders declined amid weather disruptions.

S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) slumped to 47.4 in November, a reversal from the 50.1 in October.

In a report, S&P Global said this signaled the “strongest deterioration” in operating conditions in the Philippine manufacturing sector since the 46.4 reading in August 2021.

“Output and new orders contracted at their fastest rates since August 2021, driven by weak customer demand. Exports, purchasing and employment also declined, reflecting broader challenges in the sector,” Trevor Balchin, economics director at S&P Global Market Intelligence, said.

The headline PMI is a composite indicator of manufacturing performance. A PMI reading below 50 indicates an overall deterioration in operating conditions compared to the previous month, while a reading above 50 indicates better operating conditions.

The Philippines was the only country in the Association of Southeast Asian Nations (ASEAN) that saw a deterioration in manufacturing activity in November. ASEAN PMI rose to 53 in November from 52.7 in October, as new orders and production further accelerated.

Based on S&P ASEAN PMI data, Thailand recorded the highest PMI reading at 56.8, followed by Vietnam (53.8), Indonesia (53.3), Myanmar (51.4), and Malaysia (50.1).

In August, the US began imposing a 19% reciprocal tariff on many goods from the Philippines, Cambodia, Malaysia, Thailand and Indonesia.

S&P Global said Philippine manufacturers saw new orders drop for a third straight month, and at the fastest rate since August 2021. This was attributed to “weak customer demand and reduced requirements due to product life cycle changes.”

It noted new export orders fell for the second straight month, and at steepest pace since September 2024.

“Production followed the same trend as new orders in November, falling for the third month running and at the fastest rate since August 2021. Many businesses also noted that the typhoon had caused disruptions to business activities,” it said.

S&P Global said the sharp drop in new orders led to a decline in purchasing activity for a second month in a row. This prompted firms to reduce their inventory for the first time in five months.

“The rate of destocking was the fastest in just over five years. Meanwhile, suppliers’ delivery times were shortened for the first time since April 2024, albeit only slightly,” it added.

Manufacturers also reduced staff for the first time since May.

“The overall rate of job shedding was only marginal, but the fall was linked to layoffs and the non-renewal of contracts. Backlogs rose for the first time in three months, and stocks of finished goods were depleted at the fastest rate in nearly a year,” S&P Global said.

Inflationary pressures were subdued in November, mainly due to lower demand for raw materials.

“Input price inflation eased to a four-month low, remaining well below the long-term trend, while output prices rose slightly,” Mr. Balchin said.

Despite the decline in new orders, manufacturers were confident of output growth over the next 12 months. S&P Global noted that overall sentiment was the strongest since November 2024.

“There were signs of promise, however, as manufacturers expressed increased optimism for the next 12 months, anticipating growth due to new projects and improved economic conditions,” Mr. Balchin said.

“Overall, while the manufacturing sector faces immediate challenges, the outlook suggests cautious optimism for growth moving forward,” he added.

Meanwhile, analysts said the slump in manufacturing activity can be attributed to the typhoons and earthquakes that hit parts of the country in November.

S&P Global Market Intelligence Economics Associate Director Jingyu Pan said the decline in local factory output in November is likely temporary, driven by severe weather rather than a broader weakening in demand.

“As we delve into the comments coming through from manufacturers from whom we collect the survey responses, it does appear that the back-to-back typhoons that has hit in November has actually really been quite impactful for the Philippines,” she said in an interview on Money Talks with Cathy Yang on One News on Monday.

The multiple storms that hit the country have slowed demand and disrupted factory operations, she said.

Ms. Pan said she expects factory activity to recover in December as the impact of weather disruptions dissipate.

“Still relatively softer local manufacturing PMI still largely attributed to the weather-related disruptions particularly the spillover effects of the series of storms and earthquakes that reduced working days for some local manufacturers, thereby reducing their production,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

Mr. Ricafort said November is usually the tail end of seasonal importation and production ahead of the holiday period.

He also noted the peso’s slide to a record low last month raised import costs, though this was partly offset by the Bangko Sentral ng Pilipinas’ recent rate cut.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said some firms may have scaled back production due to recent economic uncertainty and the slowdown in government projects.

“Some manufacturers are also adjusting inventories more cautiously as they wait for clearer signals on demand heading into 2025,” he said.

Mr. Rivera warned that the slowdown in manufacturing could continue in December and early 2026 if business confidence remains weak and the peso remains volatile.

“But a recovery is still possible if holiday spending gives a short-term boost and if government spending normalizes soon. Firms will continue to be cautious until they see stronger, more stable demand and a clearer policy environment,” he said.

Meanwhile, Economy Secretary Arsenio M. Balisacan said the Philippine manufacturing sector continues to grapple with high business costs, particularly due to infrastructure gaps.

“We talked about digital connectivity, but also our physical infrastructure, transport, power. We have those challenges. That’s why in the last couple of years, our task was to increase the level of spending on our infrastructure, particularly quality infrastructure,” he said at a year-end press chat on Monday.

Another hurdle for the government is ensuring efficient use of funds, noting that 5-6% of gross domestic product may not be reaching intended projects due to corruption.