December data signalled a strong end to the year for the US manufacturing sector, with overall business conditions improving at the fastest pace since March 2015. Robust rises in new orders and production volumes led to the sharpest pace of job creation for a year-and-a-half. Meanwhile, greater client spending and upbeat business confidence resulted in the largest accumulation of preproduction inventories since August 2014.
Adjusted for seasonal influences, the Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 54.3 in December, up slightly from 54.1 in November, to signal the strongest improvement in business conditions for just under two years. The latest rise in the headline index reading was largely driven by stronger rates of employment growth and inventory building in December, which more than offset slightly weaker increases in output and new orders.
Manufacturing production expanded at a robust pace in December, which marked seven months of sustained recovery. That said, the rate of output growth eased from November’s 20-month peak. Survey respondents cited improving order books and efforts to boost inventories. Reflecting this, stocks of finished goods rose at the fastest pace since February 2015.
New order growth eased fractionally since November but remained close to the strongest seen for two years. Anecdotal evidence suggested that improving domestic economic conditions and greater willingness-to-spend among clients had underpinned the latest upturn in new work.
December data signalled a continued headwind from subdued export sales, with new orders from abroad increasing at only a marginal pace. Manufacturers cited the strong dollar and intense competition for new work in key export markets.
Job creation picked up further from the near three year low seen back in April. Moreover, the latest increase in payroll numbers was the steepest recorded since June 2015. Survey respondents commented on efforts to boost operating capacity and relatively upbeat expectations for client demand. Greater workloads also led to a solid upturn in input buying during December and the most marked rise in pre-production stocks for 28 months. Despite stronger demand for inputs, suppliers’ delivery times shortened for the first time since February.
Input price inflation accelerated for the third time in the past four months during December. Moreover, the latest rise in average cost burdens was the sharpest since October 2014, which manufacturers mainly linked to greater raw material prices (especially metals). Factory gate charges also increased at the end of 2016, although the rate of
inflation remained only modest.
The December PMI® registered 54.7 percent, an increase of 1.5 percentage points from the November reading of 53.2 percent. The New Orders Index registered 60.2 percent, an increase of 7.2 percentage points from the November reading of 53 percent. The Production Index registered 60.3 percent, 4.3 percentage points higher than the November reading of 56 percent. The Employment Index registered 53.1 percent, an increase of 0.8 percentage point from the November reading of 52.3 percent. Inventories of raw materials registered 47 percent, a decrease of 2 percentage points from the November reading of 49 percent. The Prices Index registered 65.5 percent in December, an increase of 11 percentage points from the November reading of 54.5 percent, indicating higher raw materials prices for the 10th consecutive month. The PMI®, New Orders, Production and Employment Indexes all registered new highs for the year 2016, and the forward-looking comments from the panel are largely positive.
Of the 18 manufacturing industries, 11 are reporting growth in December in the following order: Petroleum & Coal Products; Primary Metals; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Apparel, Leather & Allied Products; Paper Products; Machinery; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Fabricated Metal Products; and Chemical Products. The six industries reporting contraction in December — listed in order — are: Plastics & Rubber Products; Furniture & Related Products; Printing & Related Support Activities; Textile Mills; Nonmetallic Mineral Products; and Transportation Equipment.
From Doug Short: