At 50.8 in April, down from 51.5 in March, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) signalled the weakest upturn in overall business conditions since September 2009. The flash PMI index, which is based on approximately 85% of usual monthly survey replies, was only marginally above the crucial 50.0 no-change threshold. As a result, the headline figure was slightly weaker than the previous post-crisis low recorded in October 2012 (51.0). Softer rates of manufacturing output and new business growth, alongside a weaker rise in staffing numbers, were the main factors weighing on the headline PMI figure during April.
The latest upturn in production levels was only fractional and the slowest recorded by the survey since the recovery began in October 2009. Manufacturers cited generally subdued demand conditions, delays to spending decisions among clients and ongoing weakness within the energy sector.
April data pointed to a renewed slowdown in new business growth, with the latest expansion the least marked so far in 2016. Some survey respondents suggested that uncertainty in relation to the economic outlook and political climate had weighed on client spending in April. Moreover, export sales continued to act as a drag on overall new business volumes. Although only modest, the latest survey pointed to the sharpest drop in new work from abroad since November 2014.
Backlogs of work fell for the third successive month in April, thereby suggesting a lack of pressure on operating capacity across the manufacturing sector. The latest decrease in work-in-hand (but not yet completed) was the fastest for just over six-and-a-half years. This contributed to a near-stalling of jobs growth among manufacturing firms in April, with the latest rise in payroll numbers only fractional and the weakest since June 2013.
Manufacturers indicated that tighter inventory management strategies persisted in April, led by the sharpest drop in stocks of purchases since the start of 2014. At the same time, post-production inventories decreased at a moderate pace and manufacturers recorded a renewed fall in purchasing activity. Despite softer demand for inputs, latest data signalled the sharpest deterioration in vendor performance since September 2015, which some survey respondents linked to insufficient stocks and capacity cuts among suppliers.
Average cost burdens increased slightly in April, thereby ending a seven-month period of sustained input price declines. Manufacturers noted that higher labor costs and rising prices for metals and plastics had contributed to the overall increase in their cost burdens.
Factory gate charges decreased for the third month running in April, albeit at only a marginal pace. Companies that reported a drop in their output charges generally cited subdued market conditions and corresponding pressure on operating margins.
Chris Williamson, chief economist at Markit:
US factories reported their worst month for just over six-and-a-half years in April, dashing hopes that first quarter weakness will prove temporary.
Survey measures of output and order book backlogs are down to their lowest since the height of the global financial crisis, prompting employers to cut back on their hiring.
The survey data are broadly consistent with manufacturing output falling at an annualized rate of over 2% at the start of the second quarter, and factory employment dropping at a rate of 10,000 jobs per month.
With prior months’ survey data pointing to annualized GDP growth of just 0.7% in the first quarter, the deteriorating performance of manufacturing suggests that growth could weaken closer towards stagnation in the second quarter.
The survey responses reveal an increase in business uncertainty in relation to both the economic and political outlook during the month, which is weighing on spending and investment decisions and exacerbating already-weak demand both at home and abroad.