Month: December 2016

U.S. manufacturers reported a strong end to 2016, with business conditions improving at the fastest pace since March 2015. At 54.2 in December, up fractionally from 54.1 in November, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) continued its recovery from the post-crisis low seen in May (50.7).

The headline PMI signalled a robust improvement in manufacturing sector business conditions, with faster job creation and stock building offsetting slight moderations in output and new order growth since November. Moreover, the latest rise in preproduction inventories was the strongest recorded since the survey began in May 2007. Manufacturers noted that greater stock accumulation reflected stronger optimism towards the demand outlook, alongside faster-than-expected new order growth in recent months.

Manufacturing output expanded for the seventh consecutive month in December, thereby signalling a sustained rebound from the soft patch seen in the second quarter of 2016. The rate of production growth nonetheless eased from October’s 20-month peak. Survey respondents noted that greater sales and efforts to replenish inventories had driven up production volumes at the end of 2016. Reflecting this, stocks of finished goods rose for the third month running, and at the most marked pace since March 2015.

December data revealed a further robust upturn in new work received by manufacturers, with the pace of expansion holding close to the 20-month high seen in November. This was overwhelmingly attributed to improving domestic demand conditions. Meanwhile, export sales were close to stagnation, which contrasted with the modest growth seen on average in the second half of 2016.

Improving business conditions led to increased staff hiring across the manufacturing sector in December. The rate of job creation was the steepest for a year-and-a-half, which helped to alleviate pressures on operating capacity. As a result, the latest rise in backlogs of work was only marginal and the smallest for three months.

Greater purchasing activity continued during December, which marked eight months of sustained expansion. The latest upturn in input buying was linked to increased production schedules and efforts to boost inventories, as highlighted by the survey record rise in stocks of purchases. Despite robust demand for inputs, latest data signalled that suppliers’ delivery times were broadly unchanged since the previous month.

Input price inflation accelerated for the third time in the past four months during December. Moreover, the latest increase in average cost burdens was the largest since October 2014. Manufacturers cited higher steel prices in particular, alongside generally rising raw material costs, including oil. This contributed to an upturn in factory gate charges for the third successive month, although the rate of inflation remained only modest.

Chris Williamson, Chief Business Economist at IHS Markit:

The fourth quarter has seen the strongest PMI readings for one-and-a-half years, suggesting the goods-producing sector is growing at an annualised rate of 2-2.5%.

Companies are gearing up for further growth in coming months: employment is rising at the fastest rate for 18 months and purchasing activity has likewise been ramped up in preparation for higher production. Confidence among producers has clearly improved, setting the scene for a good start to 2017.

The eurozone economy maintained a robust pace of expansion at the end of 2016, according to PMI® survey data, rounding off the best quarter this year. Price pressures meanwhile continued to mount.

The Markit Eurozone PMI held steady at 53.9 in December according to the flash estimate, based on around 85% of usual monthly survey responses, indicating that business activity grew at a rate identical to November’s 11-month high.

Inflows of new business, employment and backlogs of work all also rose at similar rates to November, suggesting firms continued to expand capacity in line with stronger demand, especially in manufacturing.

December saw an acceleration in manufacturing growth, linked in part to the weakened euro, offsetting a softening of growth in the services economy. The headline manufacturing PMI rose to its highest since April 2011, reflecting the largest monthly increase in output since April 2014 and accelerating growth of new orders and employment.

Producers reported that orders were buoyed by increased competitiveness resulting from the depreciation of the euro. The overall rise in both new orders and exports* was the largest for over five-and-a-half years. Purchasing activity was also stepped up as manufacturers responded to the upturn in demand, suggesting firms are expecting factory output to rise as we move into 2017.

While service sector activity continued to rise, the rate of increase slowed, accompanied by similar moderations in growth of both employment and new business inflows. The expansion was nevertheless in line with the average seen in 2016 and, with service providers’ expectations of activity in the year ahead jumping to an eight-month high, companies are expecting growth to pick up again in 2017.

A key development in December was a further intensification of inflationary pressures. A combination of higher import costs resulting from the euro’s depreciation and rising global commodity prices meant average input prices rose at the sharpest rate for five-and-a-half years, led by rising factory costs, which showed the biggest jump since May 2011. However, service providers also saw the biggest increase in costs for four years, in part driven by higher fuel and oil prices.

Average selling prices for goods and services rose at the steepest rate for nearly five-and-a-half years as firms passed higher costs on to customers.

With the survey showing supply chain delays to be at their most widespread since June 2011, and  backlogs of work across the economy growing to the greatest extent for five-and-a-half years in the closing months of 2016, the survey data suggest capacity is being strained by the recent rise in demand. Such capacity shortages tend to spill over into higher prices in following months.

The preliminary breakdown of the December PMI data showed growth continuing to be led by Germany, despite the pace of expansion slipping to a three-month low. Growth in France meanwhile accelerated to the fastest for one-and-a-half years – and the second-best since mid-2011 – though still lagged behind Germany.

The rest of the eurozone saw growth ease slightly compared to November’s nine-month high, caused by slower service sector growth. In Germany, France and the rest of the single currency bloc, growth was driven by accelerating expansion of manufacturing output, supported by ongoing growth of service sector activity.

Chris Williamson, Chief Business Economist at IHS Markit:

The eurozone economy is ending 2016 on a strong note. The PMI indicates that business activity has risen at the fastest rate so far this year in the fourth quarter, signalling GDP growth of 0.4%. Manufacturing business conditions are improving at the steepest rate for five-and-a-half years as the weaker euro provides a boost to exports. Service sector optimism about the year ahead has meanwhile risen to an eight-month high, suggesting companies are largely shrugging off political uncertainty, for the time being at least. (…)

However, the most significant development in December is the intensification of inflationary pressures. Rising global prices for many commodities, including oil and metals, is being exacerbated by the weak euro, pushing prices up at the sharpest rate for five-and-a-half years.