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U.S. FLASH MANUFACTURING PMI EASES ON DOLLAR

At 53.8 in May, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) fell from 54.1 in April and signalled the weakest improvement in overall business conditions since the start of 2014. Slower new order growth was a key factor weighing down on the headline index in May, while faster job creation was the main positive development since the previous month.

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Latest data indicated that overall new business growth softened for the second month running and was the weakest since January 2014. Moreover, new export sales decreased marginally in May, with a number of manufacturers noting that the strong dollar had a negative influence on competitiveness in external markets. In terms of domestic demand, survey respondents noted that energy sector investment spending remained a key area of weakness in May.

Manufacturing output growth eased further from March’s six-month high, which firms largely attributed to softer new business gains. The latest increase in output volumes was the slowest recorded so far in 2015, but still broadly in line with the post-recession average.

Meanwhile, latest data signalled the slowest pace of backlog accumulation across the manufacturing sector for four months. Lower pressure on operating capacity was linked to a combination of weaker new business gains and robust job creation.

Higher levels of manufacturing employment have been recorded in each month since July 2013. The latest upturn in payroll numbers was the fastest for six months, which firms attributed to the launch of new products, long-term investment plans and efforts to boost production volumes.

Suppliers’ delivery times lengthened in May, although the latest deterioration in vendor performance was much less marked than February’s recent low. There were reports that some supplier bottlenecks have persisted after the port strikes earlier in 2015. However, the latest survey indicated the slowest rise in pre-production inventories for 11 months, suggesting a lower propensity among manufacturers to build safety stocks in May.

On the prices front, manufacturers indicated an increase in their average cost burdens for the first time since December 2014. That said, the rate of inflation was only marginal, with survey respondents noting that low oil prices continued to help reduce cost pressures, while a number of firms commented on falling steel prices. Meanwhile, factory gate charges rose at the most marked pace for six months, but the rate of inflation remained subdued in comparison to the average seen since the survey began in 2007.

EUROZONE FLASH COMPOSITE PMI STEADY AT 53.4

The eurozone economy lost growth momentum for a second successive month in May, according to the latest PMI® survey data. However, the survey also showed that the rate of expansion remained sufficiently robust to encourage firms to take on extra staff at the fastest rate for four years. Price indices meanwhile hit three-year highs, adding to signs that deflationary pressures are receding.

Markit’s Eurozone PMI registered 53.4 in May, according to the flash reading (based on around 85% of usual monthly survey replies), down from 53.9 in April and the recent peak of 54.0 seen back in March.

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Faster growth in manufacturing was offset by a slowdown in services, though the pace in the latter merely eased slightly further from March’s eight-month high to suggest a broad-based upturn remains in place.

The survey suggests, however, that growth could continue to soften in June. Growth of new business inflows moderated for a second month running to register the smallest monthly gain since February. Weaker order book growth was centred on the service sector, with manufacturing reporting the strongest inflows of new orders for just over a year, linked to improved export performance. Expectations of future growth in the service sector meanwhile slipped, dropping to a five-month low.image

Backlogs of work also fell, albeit only marginally, for the first time since January, though this was largely in response to firms boosting capacity by taking on more staff. Employment rose at the fastest rate since May 2011.

The survey also brought some encouraging news to a region thought by many to be facing the potential threat of deflation. Companies’ average input costs rose at the steepest rate since April 2012, driven up by a combination of higher oil prices, increased wage bills and rising import costs due to the euro’s depreciation in recent months.

Although average selling prices for goods and services continued to fall, the decline was only marginal and the smallest recorded in the current 38-month sequence of reductions.image

By country, Germany saw business activity grow at the weakest rate for five months, with the pace of expansion weakening in both services and manufacturing. France meanwhile continued to see only sluggish growth, albeit with the rate of expansion picking up on the near-stagnation seen in April. Growth accelerated in the service sector while manufacturing output fell at the weakest rate since January. There was better news on employment, however, with rates of job creation gathering momentum in both Germany and France, the latter enjoying its best spell of hiring in over three years.

The rest of the region outside of the ‘core’ countries of Germany and France once again led the upturn. Although the rate of expansion slowed slightly in May, the region excluding France and Germany is on course for its best quarter of growth and job creation since the second and third quarters of 2007 respectively.

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