April survey data from Markit indicated a loss of momentum in the U.S. manufacturing economy, following a strong end to the first quarter of 2015. Output and new orders increased at slower rates and new export business declined for the first time since November, partly linked to the strong dollar. The currency also generated downward pressure on import prices, and average input costs at manufacturers fell for the fourth month running as a result. That said, the underlying strength of business conditions remained solid, with backlogs and employment both rising further.
The seasonally adjusted final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered above the 50.0 no-change threshold in April, thereby signalling an overall upturn in business conditions. The index fell to a three-month low of 54.1, from March’s 55.7, but still signalled a solid rate of improvement and was above its long-run trend level of 52.2.
Weighing most on the PMI in April was a slower rise in production. The rate of growth moderated to the weakest in 2015 so far, although it remained strong overall. Similarly, firms continued to increase their purchasing activity at a robust, albeit slower, pace. Suppliers’ delivery times lengthened further as a result, with ongoing mention of delays associated with the recent West Coast port shutdowns.
The other main factor contributing to the fall in the headline index during April was a slower rise in incoming new business. New order growth eased to a three-month low, but remained strong in the context of historic survey data. Weaker international demand linked to the strong dollar was evident as new export business declined for the first time since November.
Other survey indicators suggested the underlying health of the manufacturing sector remained firm. Employment rose for the twenty-second consecutive month, and at a robust pace. Meanwhile, backlogs of work rose for the fifth month running, while stocks of inputs also expanded as firms addressed order book requirements.
Price indicators from the latest survey continued to point to downward pressure on manufacturing input prices. Average input costs fell for the fourth month running, at a rate little-changed from March. Anecdotal evidence linked lower cost pressures to reduced prices for metals and oil-based inputs, as well as a general deflationary impact of the strong dollar on import prices. Output prices continued to rise, albeit at a fractional pace.
The slower rise in output in April reflected weaker expansions at small and medium-sized firms, while large firms (those employing more than 500 staff) registered the strongest rate of growth and the fastest expansion in 2015 to date. Large firms also registered stronger workforce growth than small and medium-sized companies.
By market group, consumer goods producers continued to drive output growth in April, followed by intermediate goods companies. Makers of investment goods recorded only a marginal increase in output in April, and also registered the slowest rate of job creation among the three monitored sectors.