August data highlighted a slight loss of momentum across the manufacturing sector. Output, new business and employment all expanded again, but at slower rates than one month previously. The latest survey also pointed to tighter inventory policies, with finished goods stocks falling for the first time in 2015 so far. Backlogs of work rose at a marginal pace that was the slowest for three months, suggesting a continued lack of pressure on operating capacity.
The final seasonally adjusted Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 53.0 in August (earlier ‘flash’ reading was 52.9), which was above the 50.0 no-change mark and indicative of a solid overall expansion of the U.S. manufacturing sector. However, the index was down from 53.8 in July and pointed to the slowest rate of improvement since October 2013.
Reports from survey respondents suggested that heightened global economic uncertainty and weaker export sales had weighed on manufacturing growth in August. A number of firms also commented on headwinds from reduced energy sector capex.
Softer output growth was a key factor contributing to the decline in the headline PMI in August. The latest rise in production volumes was the weakest since the adverse weather-related slowdown recorded in January 2014. Manufacturers noted that softer new business growth and, in some cases, efforts to reduce finished goods inventories had weighed on their product requirements in August.
Overall new order volumes increased at a solid pace in August, but the rate of expansion eased since the previous month and remained weaker than March’s recent peak. A number of firms suggested that cautious spending patterns among clients had resulted in strong competition for new work. Meanwhile, export sales decreased slightly in August and the rate of decline was the most marked since April. Lower levels of new work from abroad were partly attributed to the strong dollar.
Job creation was sustained across the manufacturing sector in August, with manufacturers noting that new product launches and ongoing expansion plans had encouraged them to boost their payroll numbers. That said, the latest increase in staffing levels was the slowest since July 2014.
Input buying rose in August, but the rate of growth was little-changed from July’s 18-month low. This contributed to the slowest accumulation of pre-production stocks for just over a year. Meanwhile, input cost inflation remained relatively subdued, helped by falling oil-related prices. Although only modest, the latest rise in factory gate charges was the most marked since November 2014.
The August PMI® registered 51.1 percent, a decrease of 1.6 percentage points from the July reading of 52.7 percent. The New Orders Index registered 51.7 percent, a decrease of 4.8 percentage points from the reading of 56.5 percent in July. The Production Index registered 53.6 percent, 2.4 percentage points below the July reading of 56 percent. The Employment Index registered 51.2 percent, 1.5 percentage points below the July reading of 52.7 percent. Inventories of raw materials registered 48.5 percent, a decrease of 1 percentage point from the July reading of 49.5 percent. The Prices Index registered 39 percent, down 5 percentage points from the July reading of 44 percent, indicating lower raw materials prices for the 10th consecutive month.
Of the 18 manufacturing industries, 10 are reporting growth in August in the following order: Textile Mills; Furniture & Related Products; Paper Products; Nonmetallic Mineral Products; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Fabricated Metal Products; Plastics & Rubber Products; and Machinery. The six industries reporting contraction in August — listed in order — are: Apparel, Leather & Allied Products; Primary Metals; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Computer & Electronic Products; and Transportation Equipment.
August’s reading indicates that customers’ inventories are considered to be too high, which has not been the case since March 2009 when the Customers’ Inventory Index registered 54 percent.
The New Export Orders Index registered 46.5 percent, down 1.5 percentage points from the July reading of 48 percent. Comments from the panel reflect a mix of modest to strong growth depending upon the specific industry, the positive impact of lower raw materials prices, but also a continuing concern over export growth.”