April data indicated that U.S. manufacturers started the second quarter of 2016 with a renewed slowdown in production and new business growth. At the same time, employment levels were close to stagnation and input buying dropped at the fastest pace for two-and-a-half years, amid reports of slower than expected demand during the latest survey period.
Adjusted for seasonal influences, the final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 50.8 in April, down from 51.5 in March and only slightly above the 50.0 no-change threshold. The latest reading was weaker than the average seen in Q1 2016 (51.7) and signalled the slowest improvement in overall business conditions for just over six-and-a-half years.
Output volumes were close to stagnation in April, with the latest survey pointing to the weakest rise since the current period of expansion began in October 2009. Anecdotal evidence suggested that subdued client demand, uncertainty about the economic outlook and lower energy sector capital spending had all acted as a drag on manufacturing production in April.
Manufacturers recorded another modest increase in overall new work at the start of the second quarter, but the rate of expansion was the weakest since December 2015. Reduced export demand had a negative influence on manufacturing order books in April, with new work from abroad decreasing at the fastest pace for nearly one-and-a-half years.
A lack of pressure on operating capacity persisted across the manufacturing sector during April, as highlighted by a decline in backlogs of work for the third month running. Moreover, the latest fall in unfinished business was the sharpest since September 2009. This contributed to a near-stalling of payroll numbers in April, with the rate of job creation the weakest for just under three years.
Softer new business growth resulted in lower input buying and cautious inventory policies among manufacturing firms in April. Stocks of purchases decreased for the fifth consecutive month and at the strongest pace since the start of 2014. Post-production inventories also dropped again in April, although the rate of decline was only marginal.
April data pointed to renewed input cost pressures at manufacturing companies, which ended a seven-month period of sustained decline. A marginal rise in input prices was linked to higher raw material costs. Nonetheless, factory gate charges decreased further, reflecting squeezed pricing power and efforts to boost client spending.
Commenting on the final PMI data, Chris Williamson, chief economist at Markit said:
The April PMI data suggest there’s no end in sight to the current downturn in manufacturing activity. The survey indicates that factory output is dropping at an annualized rate of approximately 3%, and factory headcounts are being culled at a rate of around 10,000 per month. (…)
Rather than reviving after a disappointingly weak first quarter, the data flow therefore appears to be worsening in the second quarter, raising question marks over whether GDP growth will improve on the near-stalling seen in the first three months of the year.
Economic activity in the manufacturing sector expanded in April for the second consecutive month, while the overall economy grew for the 83rd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.
The April PMI® registered 50.8 percent, a decrease of 1 percentage point from the March reading of 51.8 percent. The New Orders Index registered 55.8 percent, a decrease of 2.5 percentage points from the March reading of 58.3 percent. The Production Index registered 54.2 percent, 1.1 percentage points lower than the March reading of 55.3 percent. The Employment Index registered 49.2 percent, 1.1 percentage points above the March reading of 48.1 percent. Inventories of raw materials registered 45.5 percent, a decrease of 1.5 percentage points from the March reading of 47 percent. The Prices Index registered 59 percent, an increase of 7.5 percentage points from the March reading of 51.5 percent, indicating higher raw materials prices for the second consecutive month. Manufacturing registered growth in April for the second consecutive month, as 15 of our 18 industries reported an increase in new orders in April (up from 13 in March), and 15 of our 18 industries reported an increase in production in April (up from 12 in March).”
Of the 18 manufacturing industries, 11 are reporting growth in April in the following order: Wood Products; Printing & Related Support Activities; Paper Products; Plastics & Rubber Products; Primary Metals; Fabricated Metal Products; Chemical Products; Machinery; Computer & Electronic Products; Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products. The four industries reporting contraction in April are: Petroleum & Coal Products; Transportation Equipment; Miscellaneous Manufacturing; and Furniture & Related Products.