Strong output growth, strong new orders, strong and rising backlogs and tight inventories of finished goods: manufacturing is booming! Delivery times are lengthening. Rising prices ahead?
June data pointed to a robust and accelerated improvement in the performance of the U.S. manufacturing sector. At 57.5 in June, up from 56.4, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) indicated the strongest upturn in overall business conditions since May 2010. The latest rise in the headline PMI was driven by the fastest output and new orders growth for just over four years.
Manufacturing output growth picked up for the third month running to its strongest since April 2010. Moreover, the average pace of expansion in Q2 was the steepest for any quarter since the survey began in early-2007. Survey respondents generally attributed rising production volumes to improving domestic economic conditions, increased client confidence and a strong pipeline of outstanding work.
In line with the trend for output, total new business volumes increased at a sharp and accelerated pace during June. The latest rise in new work was the most marked since April 2010, despite a weaker contribution from new export order growth. June data signalled that new business from abroad picked up at the slowest pace seen over the current five-month period of expansion.
Payroll numbers at manufacturing firms increased for the twelfth successive month in June. A further solid upturn in employment levels was driven by greater production requirements and the fastest rise in backlogs of work for four months. Moreover, aside from the sharp increase in unfinished work related to heavy snowfall in February, the latest accumulation of outstanding business was the steepest since the survey began in May 2007.
Manufacturers responded to stronger client demand by increasing their input buying at a robust pace in June, which extended the current period of rising purchasing activity to eight months. However, stocks of purchases were unchanged in June, while post-production inventories decreased at the fastest rate since January. Some survey respondents noted that stronger than expected sales had contributed to lower stocks of finished goods at their units.
June survey data highlighted strong input price inflation across the manufacturing sector. The latest rise in average cost burdens was the fastest since January. Anecdotal evidence cited higher prices for a range of raw materials, especially metals. Meanwhile, factory gate price inflation picked up for the first time in 2014 to date. That said, the latest rise in manufacturers’ output charges was only moderate and remained weaker than the long-run series average.