U.S. Manufacturing Growth Remains Strong Despite Hitting Four-Month Low


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June data signalled a slightly softer rate of growth across the U.S. manufacturing sector. The PMI dipped to its lowest in four months as output and new orders both expanded at the slowest rates since November 2017. Meanwhile, the effects of tariffs were widely cited as contributing to another sharp rise in input prices, while suppliers’ delivery times lengthened to the greatest extent since the series began. Average charges also increased sharply, rising at the second-fastest rate since June 2011.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index (PMI) registered 55.4 in June, down from 56.4 in May. The latest PMI reading was up from the ‘flash’ figure of 54.6 and ended the strongest quarterly performance since the third quarter of 2014.

Output growth remained strong in June, despite the rate of expansion easing to a seven-month low.

Similarly, the upturn in new orders was the softest since November 2017. Although the expansion lost some momentum, it was solid nonetheless. Panellists stated that growth was due to robust client demand and favourable market conditions. However, new business from abroad contracted for the first time since July 2017 (albeit only slightly), amid reports of weaker foreign client demand following recent tariff announcements.

The rate of input cost inflation was the slowest for four months, but remained sharp nonetheless. The rise in cost burdens was driven by greater global demand for inputs and the effects of recent tariffs. Supplier shortages were a key factor behind longer delivery times. Lead times for inputs lengthened to the greatest extent in the series history.

Factory gate prices also increased sharply, with the rate of inflation accelerating to the second-fastest since June 2011. Panellists widely commented that higher input costs were partly passed onto clients.

Reflective mainly of difficulties in sourcing raw materials, buying activity and stocks of purchases grew at weaker rates in June.

Capacity pressures persisted, despite employment growth quickening since May, as backlogs increased solidly. The rate of job creation was the fastest since February and outstanding business rose at the second-strongest rate since September 2015.

Business confidence was strong in June. Optimism was commonly linked to expected sustained upturns in output and new orders. That said, sentiment fell to the lowest level for five months.

Comment

Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“The PMI for June rounds off the best quarter for manufacturing for almost four years, but also fires some warning shots about what lies ahead. As such, the second quarter could represent a peak in the production cycle.

“The survey has a good track record of accurately anticipating changes in the official manufacturing output data, and suggests the goods-producing sector is growing at an annualised rate of around 2.5%.

“On the downside, new orders inflows were the weakest for seven months, with rising domestic demand countered by a drop in export sales for the first time since July of last year. Business optimism about the year ahead also fell to the lowest since January, with survey respondents worried in particular about the potential impact of trade wars and tariffs.

“Tariffs were widely blamed on a further marked rise in input costs, and also linked to worsening supply chain delays – which hit the highest on record, exacerbating existing tight supply conditions.”

About IHS Markit

IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and expertise to forge solutions for customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions.

About PMI

Purchasing Managers’ Index (PMI) surveys are now available for over 40 countries and also for key regions including the eurozone. They are the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more click here.

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