U.S. manufacturers signalled a relatively strong start to the third quarter of 2016. Output growth picked up markedly since June, driven by a robust and accelerated expansion of incoming new work.
While domestic demand remained the key source of growth in July, there were also signs of renewed momentum in external markets. Reflecting this, new export sales expanded at the fastest pace since September 2014. Increased workloads also contributed to rising payroll numbers and a solid upturn in input buying during July.
The seasonally adjusted Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 52.9 in July, up from 51.3 in the previous month and comfortably above the postcrisis low seen in May (50.7). The final PMI reading for July was unchanged from the earlier ‘flash’ reading (52.9). Improving business conditions reflected stronger rates of output, new order and employment growth during the latest survey period.
July data signalled a sustained rebound in production volumes across the manufacturing sector. Higher levels of output have been recorded in each of the past two months, with the latest expansion the fastest since November 2015. Anecdotal evidence cited greater inflows of new work and supportive economic conditions.
New business growth continued to recover from May’s post-crisis low, with the latest improvement in new order books the strongest for nine months. At the same time, export sales increased at a modest pace in July, which manufacturers linked to successful promotional initiatives and entry into new markets. Rising workloads in turn contributed to an accumulation of unfinished business for the second month running.
Payroll numbers increased in July, which continued the upward trend recorded over the past three years. Moreover, the rate of job creation picked up to its strongest since July 2015. Manufacturers noted that faster new business growth and the launch of new products were key factors boosting staff recruitment at their plants.
Meanwhile, higher levels of incoming new work also resulted in greater volumes of purchasing activity during July. Input buying has now risen for three months running and the latest expansion was the steepest since October 2015. However, manufacturers remained cautious in terms of their inventory holdings, with stocks of finished goods and pre-production inventories both falling since the previous month.
Manufacturers signalled a further moderate increase in average cost burdens in July, which extended the current period of input price inflation to four months. Survey respondents widely commented on higher steel prices. At the same time, factory gate charges increased only marginally in July, with firms noting that strong competition for new work continued to exert pressure on operating margins.
The July PMI® registered 52.6 percent, a decrease of 0.6 percentage point from the June reading of 53.2 percent. The New Orders Index registered 56.9 percent, a decrease of 0.1 percentage point from the June reading of 57 percent. The Production Index registered 55.4 percent, 0.7 percentage point higher than the June reading of 54.7 percent. The Employment Index registered 49.4 percent, a decrease of 1 percentage point from the June reading of 50.4 percent. Inventories of raw materials registered 49.5 percent, an increase of 1 percentage point from the June reading of 48.5 percent. The Prices Index registered 55 percent, a decrease of 5.5 percentage points from the June reading of 60.5 percent, indicating higher raw materials prices for the fifth consecutive month. Manufacturing registered growth in July for the fifth consecutive month, as 12 of our 18 industries reported an increase in new orders in July (same as in June), and nine of our 18 industries reported an increase in production in July (down from 12 in June).
From Doug Short: