One thing I didn't see mentioned explicitly in the other comments: small talk isn't about what's being said verbally Obviously the manager is just acknowledging your presence and trying to relate with you since you're the only two people in the room. It's an invite to talk. Not talking in a room with two people might be awkward.
Most of human communication is non-verbal. Like the other answers here, you could respond earnestly saying "Bob was here but has just gone to get a glass of water"
Or better yet, respond with light humor, depending on your relationship with the project manager. Responding literally is boring Take the conversation somewhere..
"Of course I'm here! I'm always on the ball"
"I just can't wait to talk about the project!"
"I just like hanging out in this room"
"Oh, we have a meeting? I'm just hiding from [the client, the boss, Ralph from accounting]"
"We're the only two people who are on time apparently"
... Or, if you think that's too flippant. Follow-up with a personal question
"I made it! What do you think about the new project Jim's working on?"
"I'm here. What happened with that call with production yesterday, where are the missing units?"
"I haven't talked with you much lately, how's project X going?"