September data highlighted a further upturn in U.S. manufacturing output, but the rate of expansion was modest and only slightly faster than seen on average during the first half of 2016. The latest survey also pointed to a lack of momentum in terms of incoming new orders, especially from export clients.
Manufacturers indicated the slowest overall rise in new business intakes so far this year, which contributed to relatively subdued job hiring and ongoing efforts to reduce inventory levels.
Meanwhile, factory gate charges were reduced slightly in September, despite another marginal increase in input costs at manufacturing firms.
At 51.4 in September, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) was down from 52.0 in August and pointed to the weakest improvement in overall business conditions since June. The latest PMI reading marked seven years of continuous growth across the manufacturing sector. However, the headline index was below the average seen over this period (54.0) and remained close to the post-crisis low recorded in May (50.7).
Softer rates of output and new business growth were the main factors weighing on the headline PMI during September. Moreover, the latest expansion of manufacturing production was the weakest for three months. Survey respondents suggested that relatively subdued economic conditions had acted as a brake on new order volumes, while there were also reports that the strong dollar had dampened export sales. Reflecting this, latest data signalled that new work rose at the slowest pace since December 2015, while export orders dropped for the first time in four months.
Backlogs of work increased only marginally in September, with the latest accumulation of unfinished business the slowest since May. Despite a lack of pressure on operating capacity, manufacturers indicated a rebound in job creation from the four-month low seen during August. Companies that reported a rise in payroll numbers cited increased investment spending, the launch of new products and continued optimism regarding the term business outlook.
Purchasing activity picked up again in September, which marked five months of sustained growth. At the same time, stocks of inputs decreased at the slowest pace since February. However, manufacturers remained cautious in terms of their holdings of finished goods during September, with the latest fall the fastest recorded for almost one year. A number of firms commented on deliberate reductions to post-production inventories amid efforts to boost cash flow.
Meanwhile, latest survey data highlighted that input cost inflation remained subdued across the manufacturing sector. Higher input prices have been recorded in each of the past six months, but the rate of inflation in September was among the slowest seen over this period. Subdued cost inflation and intense competition for new work resulted in a reduction in manufacturers’ output charges during September. Although only marginal, the decline in factory gate prices was the fastest since April.