MARKIT’S PMI:

U.S. manufacturers signalled a relatively strong start to the third quarter of 2016. Output growth picked up markedly since June, driven by a robust and accelerated expansion of incoming new work.

While domestic demand remained the key source of growth in July, there were also signs of renewed momentum in external markets. Reflecting this, new export sales expanded at the fastest pace since September 2014. Increased workloads also contributed to rising payroll numbers and a solid upturn in input buying during July.

The seasonally adjusted Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 52.9 in July, up from 51.3 in the previous month and comfortably above the postcrisis low seen in May (50.7). The final PMI reading for July was unchanged from the earlier ‘flash’ reading (52.9). Improving business conditions reflected stronger rates of output, new order and employment growth during the latest survey period.

July data signalled a sustained rebound in production volumes across the manufacturing sector. Higher levels of output have been recorded in each of the past two months, with the latest expansion the fastest since November 2015. Anecdotal evidence cited greater inflows of new work and supportive economic conditions.

New business growth continued to recover from May’s post-crisis low, with the latest improvement in new order books the strongest for nine months. At the same time, export sales increased at a modest pace in July, which manufacturers linked to successful promotional initiatives and entry into new markets. Rising workloads in turn contributed to an accumulation of unfinished business for the second month running.

Payroll numbers increased in July, which continued the upward trend recorded over the past three years. Moreover, the rate of job creation picked up to its strongest since July 2015. Manufacturers noted that faster new business growth and the launch of new products were key factors boosting staff recruitment at their plants.

Meanwhile, higher levels of incoming new work also resulted in greater volumes of purchasing activity during July. Input buying has now risen for three months running and the latest expansion was the steepest since October 2015. However, manufacturers remained cautious in terms of their inventory holdings, with stocks of finished goods and pre-production inventories both falling since the previous month.

Manufacturers signalled a further moderate increase in average cost burdens in July, which extended the current period of input price inflation to four months. Survey respondents widely commented on higher steel prices. At the same time, factory gate charges increased only marginally in July, with firms noting that strong competition for new work continued to exert pressure on operating margins.

THE ISM:

The July PMI^® registered 52.6 percent, a decrease of 0.6 percentage point from the June reading of 53.2 percent. The New Orders Index registered 56.9 percent, a decrease of 0.1 percentage point from the June reading of 57 percent. The Production Index registered 55.4 percent, 0.7 percentage point higher than the June reading of 54.7 percent. The Employment Index registered 49.4 percent, a decrease of 1 percentage point from the June reading of 50.4 percent. Inventories of raw materials registered 49.5 percent, an increase of 1 percentage point from the June reading of 48.5 percent. The Prices Index registered 55 percent, a decrease of 5.5 percentage points from the June reading of 60.5 percent, indicating higher raw materials prices for the fifth consecutive month. Manufacturing registered growth in July for the fifth consecutive month, as 12 of our 18 industries reported an increase in new orders in July (same as in June), and nine of our 18 industries reported an increase in production in July (down from 12 in June).

From Doug Short:

At 52.0 in July, down from June’s six-month high of 52.8, the final Markit Eurozone Manufacturing PMI® came in slightly above its earlier flash estimate of 51.9. The PMI has now signalled expansion for 37 consecutive months.

The main factor underlying the drop in the headline index was a softer positive contribution from new order growth. Incoming new business rose at a weaker pace than in June and to a lesser extent than the average for the year-to-date.

Although the rate of job creation also ticked lower, it remained among the fastest registered over the past five years. This partly reflected further solid growth in production volumes, which held steady at June’s six-month peak, and a further accumulation of backlogs of work. Inflows of new export business also improved during the latest survey month, albeit at a marginally slower pace, in part aided by the weak euro exchange rate.

The downside of the weaker currency was an increase in import costs that, alongside higher oil prices, led to the first increase in average purchase prices for a year. In contrast, output charges fell again, albeit to the smallest extent during the current 11-month period of reductions.

National PMI data indicated that five out of the seven nations for which data were available saw an improvement in operating performance during July. Slower growth was registered in three of the ‘big-four’ nations (Germany, Italy and Spain) while the downturn in France continued.

Germany stayed at the apex of the PMI growth rankings, as output expanded at the fastest pace since April 2014 despite a slight easing in new order growth. Germany also recorded the joint fastest increase in new export business (tied with the Netherlands) and solid job creation. Austria and the Netherlands were the next best performers and also saw marked expansions during July. In Austria’s case this reflected a slight deceleration from the recent highs in output and new order growth achieved in June, whereas the Netherlands posted mild accelerations. Both nations registered quicker rates of job creation.

The upturns in Italy and Spain lost momentum during July, with the Italian PMI and Spanish PMI hitting 18- and 31-month lows respectively. Italy reported weaker increases in production, new orders and employment. The picture was more mixed for Spain, with weaker output growth and a decline in new orders (the first since November 2013) contrasting with faster job creation.

France and Greece recorded contractions in output and new business at the start of the third quarter, despite both nations seeing improved inflows of new export orders. France also reported a reduction in staffing levels, the fifth in as many months. In contrast, Greece saw employment rise at the quickest pace in nine years.

Chris Williamson, Chief Economist at Markit:

However, dig deeper beyond the headline numbers and more worrying pictures appear. Expansions in output and employment are clearly being driven to a large extent by surging growth in Germany, while growth has almost stalled in both Italy and Spain and contractions are being seen in France and Greece.