Manufacturing PMI contracts for 1st time in 19 months

FACTORY ACTIVITY in the Philippines unexpectedly contracted for the first time in 19 months in March, as manufacturers cut output amid uncertainty surrounding US tariff policies.

The S&P Global Philippine Manufacturing Purchasing Managers’ Index (PMI) came in at 49.4, slipping from the 51 reading in February.

March marked the first time that PMI, a closely monitored gauge of economic sentiment, fell below the neutral 50 level since August 2023. It also ended 18 straight months of growth.

A PMI reading below 50 shows a deterioration in operating conditions from the previous month, while a reading above 50 signals an improvement.

“The Filipino manufacturing sector indicated a renewed deterioration in operating conditions in March. Furthermore, the health of the sector worsened at the strongest pace since August 2021,” Maryam Baluch, economist at S&P Global Market Intelligence, said in a report.

S&P Global’s Association of Southeast Asian Nations (ASEAN) data showed the Philippines, Thailand (49.9), Myanmar (49.8) and Malaysia (48.8) all posted contractions in March.

Indonesia recorded the highest PMI reading (52.4) in March, followed by Vietnam (50.5).

The Philippines’ PMI reading also fell below the 50.8 average for ASEAN in March.

In its report, S&P Global said Philippine companies cut output in March amid a fresh decline in new orders.

“Goods producers experienced a modest decline in manufacturing output in March, marking the end of an 11-month growth sequence,” it said.

S&P Global noted factory orders dropped in March after 18 months of expansion.

“Panelists noted that growing competition and fewer clients led to a reduction in new orders, with output scaled back as a result. The growth in new export orders seen previously also dissipated, with March data signaling a marginal drop in new business from overseas,” Ms. Baluch said.

As production fell, manufacturing firms paused hiring activity in March.

“Levels of unfinished work also fell, after being accumulated at the strongest pace in nearly two years in the prior survey period. Panelists indicated that they had sufficient manpower to meet order requirements and finish any pending tasks,” S&P Global said.

Also, S&P Global said a “modest” increase in price pressures was seen in March. Higher material prices pushed companies to hike their charges, it added.

“However, both cost burdens and output charges rose at rates that were weaker than their respective historical averages,” it said.

Despite the challenges in March, Philippine manufacturers still had an upbeat outlook for production.

“Nonetheless, businesses remain optimistic in their year-ahead production forecasts, with confidence levels at a four-month high. Optimism was reflected in firms’ decisions to maintain their purchasing activity and build stocks,” Ms. Baluch said.

As firms anticipated higher output in the coming months, buying activity rose for a 16^th straight month in March.

“Moreover, firms chose to expand their inventories, with stocks of purchases recording a fresh rise, and post-production inventories growing at a modest but historically solid rate,” it said.

S&P Global Marketing Intelligence Economics Associate Director Jingyu Pan said Philippine manufacturers’ optimistic production outlook stems from expectations of election spending and lower interest rates.

“But on the long-run basis, I think, yeah, a lot of them are also very much concerned over the impact on tariffs on what that might actually mean as well for production in the next year,” she said on Money Talks with Cathy Yang on One News on Wednesday.

US President Donald J. Trump is scheduled to announce a new round of reciprocal tariffs on US trading partners on Wednesday 2000 GMT (Thursday, 4 a.m. Philippine time). These tariffs are expected to take effect immediately after Mr. Trump’s announcement. (Related story “Trump to escalate global trade tensions with new reciprocal tariffs on US trading partners”).

The Washington Post reported on Tuesday that White House aides have drafted a proposal to impose tariffs of around 20% on most imports to the US.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the contraction in factory activity may indicate manufacturers’ “cautious mode” ahead of Mr. Trump’s tariff announcement.

He noted higher US tariffs and other protectionist policies could slow global trade, investments, employment and other economic activities, as well as hurt the global economy. — Aubrey Rose A. Inosante