August data pointed to a further moderate upturn in business conditions across the U.S. manufacturing sector. However, the overall pace of improvement slowed since July amid weaker rises in new orders and payroll numbers. The latest survey also highlighted a sustained drop in inventory volumes among manufacturing firms. Meanwhile, input cost inflation remained subdued and average prices charged by manufacturers were broadly unchanged over the month.
At 52.0 in August, the seasonally adjusted Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) dropped from 52.9 in July but remained comfortably above the neutral 50.0 value.
The latest PMI reading was fractionally lower than the earlier ‘flash’ estimate of 52.1 and signalled a weaker improvement in overall business conditions than the
average since the survey began in late-2009 (54.0). Softer rates of new order and employment growth were the main factors weighing on the headline index in August.
Manufacturers indicated a further solid increase in production volumes during the latest survey period, with the pace of expansion the joint-fastest since November 2015. Anecdotal evidence suggested that improving economic conditions and sustained new business growth had led to increased production schedules. The latest upturn in new orders was slower than the nine-month peak seen in July, despite new export sales rising at the steepest pace since September 2014.
Relatively subdued new order growth led to a weaker pace of staff hiring across the manufacturing sector in August. The latest increase in payroll numbers was only marginal and the least marked since April. Some firms also cited efforts to improve efficiency in response to pressure on margins. That said, backlogs of work continued to rise in August, which some manufacturers linked to short-term pressures on operating capacity.
The latest survey indicated a reduction in stocks of finished goods for the third month running. A number of firms noted that post-production inventories were depleted in response to softer new business growth and caution regarding the demand outlook. Stocks of inputs were also reduced in August, although at the slowest rate since February.
While some manufacturers commented on the need to boost cash flow, there were also reports citing looser inventory policies in response to lengthening delivery times from suppliers.
Meanwhile, average cost burdens increased at only a marginal pace in August. The rate of input price inflation was the weakest since March, despite reports of rising raw material costs (especially steel). Factory gate charges were broadly unchanged in August, which contrasted with rising output prices during the three months to July.
The August PMI® registered 49.4 percent, a decrease of 3.2 percentage points from the July reading of 52.6 percent. The New Orders Index registered 49.1 percent, a decrease of 7.8 percentage points from the July reading of 56.9 percent. The Production Index registered 49.6 percent, 5.8 percentage points lower than the July reading of 55.4 percent. The Employment Index registered 48.3 percent, a decrease of 1.1 percentage points from the July reading of 49.4 percent. Inventories of raw materials registered 49 percent, a decrease of 0.5 percentage point from the July reading of 49.5 percent. The Prices Index registered 53 percent, a decrease of 2 percentage points from the July reading of 55 percent, indicating higher raw materials prices for the sixth consecutive month. Manufacturing contracted in August for the first time since February of this year, as only six of our 18 industries reported an increase in new orders in August (down from 12 in July), and only eight of our 18 industries reported an increase in production in August (down from nine in July).
Of the 18 manufacturing industries, six are reporting growth in August in the following order: Printing & Related Support Activities; Nonmetallic Mineral Products; Computer & Electronic Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products. The 11 industries reporting contraction in August — listed in order — are: Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Plastics & Rubber Products; Furniture & Related Products; Transportation Equipment; Machinery; Textile Mills; Paper Products; Petroleum & Coal Products; Primary Metals; and Fabricated Metal Products.
ISM®’s New Orders Index registered 49.1 percent in August, which is a decrease of 7.8 percentage points when compared to the 56.9 percent reported for July, indicating contraction in new orders for first time since December 2015 when the New Orders Index registered 48.8 percent. A New Orders Index above 52.2 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).
The six industries reporting growth in new orders in August — listed in order — are: Nonmetallic Mineral Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Chemical Products; and Fabricated Metal Products. The nine industries reporting a decrease in new orders during August — listed in order — are: Wood Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Furniture & Related Products; Transportation Equipment; Plastics & Rubber Products; Machinery; Primary Metals; and Paper Products.
ISM®’s New Export Orders Index registered 52.5 percent in August, the same reading as in July, indicating growth in new export orders for the sixth consecutive month.
The eight industries reporting growth in new export orders in August — listed in order — are: Wood Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Machinery; and Paper Products. The six industries reporting a decrease in new export orders during August — listed in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; Primary Metals; Plastics & Rubber Products; and Transportation Equipment.
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