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Recovery Watch

U.S. FLASH MANUFACTURING PMI DROPS TO 50.8

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.

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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.

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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.

U.S. Manufacturing PMIs Point To Strong Domestic Economy

THE ISM (via Doug Short)

Today the Institute for Supply Management published its monthly Manufacturing Report for June. The latest headline PMI was 53.5 percent, an increase of 0.7% from the previous month and slightly above the Investing.com forecast of 53.1. This was the 30th consecutive month of expansion.

Here is the key analysis from the report:

“The June PMI® registered 53.5 percent, an increase of 0.7 percentage point over the May reading of 52.8 percent. The New Orders Index registered 56 percent, an increase of 0.2 percentage point from the reading of 55.8 percent in May. The Production Index registered 54 percent, 0.5 percentage point below the May reading of 54.5 percent. The Employment Index registered 55.5 percent, 3.8 percentage points above the May reading of 51.7 percent, reflecting growing employment levels from May at a faster rate. Inventories of raw materials registered 53 percent, an increase of 1.5 percentage points from the May reading of 51.5 percent. The Prices Index registered 49.5 percent, the same reading as in May, indicating lower raw materials prices for the eighth consecutive month. Comments from the panel indicate mostly stable to improving business conditions, with the notable exception relating to the oil and gas markets. Also noted is the negative effect on egg prices and availability due to the avian flu outbreak.”

The chart below shows the Manufacturing Composite series, which stretches back to 1948. The eleven recessions during this time frame are indicated along with the index value the month before the recession starts.

ISM Manufacturing

FROM MARKIT:

June data indicated a slower improvement in overall business conditions across the U.S. manufacturing sector, with softer output growth offsetting a slight pick-up in the pace of new business gains and job creation. The latest survey indicated that subdued export demand remained a key factor weighing down overall new order growth, as highlighted by a fall in new work from abroad for the third month running. Meanwhile, input cost inflation picked up in June, but output charge inflation moderated since the previous month.

The seasonally adjusted final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 53.6 in June, down from 54.0 in May and the lowest reading since October 2013. That said, the headline index remained above the 50.0 mark that separates expansion from contraction.

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Manufacturers indicated a slowdown in production growth for the third month running during June. Reports from survey respondents suggested that subdued export sales and weaker investment spending patterns in the energy sector had weighed on output growth.

Overall volumes of new work increased at a slightly faster pace than the 16-month low seen in May. Manufacturers commented on solid demand from domestic clients and gradually improving economic conditions. Meanwhile, new export orders dropped for the third successive month, which is the longest continuous period since the second half of 2012. Lower demand from abroad was linked to the strong dollar, subdued sales to clients in the euro area and intense competition for new work.

imageDespite weaker output growth and only a slight acceleration in total new business gains, the latest survey highlighted the fastest increase in payroll numbers since September 2014. Manufacturers noted that ongoing company expansion plans and the launch of new products had acted as a driver of staff recruitment at their plants. Meanwhile, backlogs of work continued to accumulate in June. In some instances, survey respondents noted that difficulties in recruiting suitably skilled staff had contributed to rising volumes of work outstanding.

June data indicated an improvement in supplier performance for the first time in two years, despite a robust and accelerated expansion of manufacturing sector purchasing activity. Stocks of purchases and pre-production inventories also increased since the previous month. Meanwhile, average cost burdens rose for the second month running in June, leading to a modest increase in factory gate charges.

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