Amid rainy weather, higher tariffs, and an import ban, the Philippine manufacturing sector slipped back into contraction in September as its purchasing managers’ index (PMI) fell to 49.9, the lowest in six months and only the third decline in more than four years.

The report noted that the drop in September was the second-steepest recorded since the beginning of the year; the previous decline was a deeper 49.4 last March.

“Firms responded with a marginal increase in selling prices. Anecdotal evidence signaled that rising material prices were the primary factor behind heightened costs and increased charges,” it added.

While the contraction represents a slight weakening of the manufacturing sector, S&P Global emphasized that “this was only the third time in just over four years where the headline index has been in contraction territory.”

The survey showed that sales declined for the first time since March, with businesses citing fewer customers. “Reduced sales volumes led Filipino manufacturers to scale back production at the end of the third quarter, which ended a three-month sequence of expansion,” the report said. “As demand weakness, panelists indicated that poor weather conditions and import restrictions on rice had negatively impacted output.”

Despite slower demand, manufacturers continued to increase input purchases, helping build stocks of raw materials. Foreign orders continued to improve, but the downturn was largely concentrated in the domestic market. Post-production inventories declined due to lower output and efforts to reduce backlogs, which dropped for the first time since April.

The report showed that the cost burden eased slightly from August, though the pace of increase remained among the highest recorded in 2025, compared with a muted rise in factory-gate prices.

S&P Global said slower operations were partly due to a renewed, albeit marginal, drop in new order intakes in September.

“Greater buying activity helped to bolster stocks of purchased goods,” the report added.

Data indicated a subdued job market in September. However, S&P Global highlighted that firms remained optimistic about the production outlook. “Although easing slightly from August, the level of business confidence was the second highest since last November,” it said. Firms expected sales to improve over the next 12 months, which supported continued purchasing of inputs.

“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,” said S&P Global senior economist David Owen.

“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,” Owen said.

“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,” he said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), told Manila Bulletin that the slowdown was mainly due to weather disturbances, including storms and flooding that shortened workdays for certain local manufacturers, alongside the “ghost month,” which curtailed business activity for most of the month.

“Also partly due to [United States (US) President Donald] Trump’s higher tariffs that could reduce demand for exports from other countries, trade wars, and other protectionist measures that 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,” Ricafort added.

The latest Philippine Statistics Authority (PSA) data showed that merchandise exports grew at their slowest pace so far this year in August, as US tariffs took effect that month and exporters’ front-loading of outbound shipments ended.

The cost of manufacturing inputs in the country also rose to a five-month high in August, ending three consecutive months of decline, separate PSA data released last Tuesday, Sept. 30, showed.

(Ricardo M. Austria)