The U.S. manufacturing sector crept closer to stagnation in May, with the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registering only slightly above the neutral 50.0 mark at 50.5. This was down from 50.8 in April and signalled only a marginal improvement in overall business conditions that was the weakest since the current upturn started in October 2009. A renewed fall in production was one key factor weighing on the headline index in May, alongside softer new order growth and further cuts to stocks of inputs.

U.S. manufacturers signalled the first reduction in output since September 2009 in May, although the rate of decline was only marginal. A number of monitored firms mentioned that uncertainty around the general economic outlook had caused clients to delay spending decisions, which in turn prompted firms to trim their production schedules.

Softer client demand was highlighted by a further slowdown in new business growth in May. Furthermore, the latest expansion in new order books was the weakest seen in 2016 so far. Data indicated that reduced foreign client demand had underpinned slower growth in overall new orders. New export sales fell for the second month in a row, though the rate of reduction softened since April.

A general lack of pressure on operating capacity was signalled by the latest survey data, with outstanding work at U.S. manufacturers falling for the fourth successive month in May. The rate of backlog depletion was unchanged from April’s post-recession record and moderate overall. Despite slower growth of new orders, goods producers in the U.S. continued to add to their payroll numbers in May. The rate of employment growth was only slight, however, despite picking up from April’s 34-month low.

Manufacturing firms continued to adopt relatively cautious inventory policies in the face of an uncertain business outlook and weaker new order growth. Stocks of inputs declined for the sixth month running and at a rate that was only slightly weaker than in April. Meanwhile, inventories of finished items rose marginally in May, following a slight reduction in the previous month.

Buying activity increased at a marginal pace in the latest survey period, after a modest reduction in April. Although demand for inputs was relatively muted, average supplier performance continued to deteriorate, with lead times lengthening at a modest pace in May.

Overall input prices rose for the second month running in May, with some companies citing higher costs for raw materials such as metals and oil. Despite quickening since April, the pace of inflation remained moderate overall and slower than the series average.

Average selling prices set by U.S. manufacturers were broadly unchanged in May, thereby ending a three-month sequence of price discounting. Reports from panellists indicated that greater cost burdens had led some firms to raise their charges in the latest survey period.

The May Flash PMI reinforced the picture of subdued growth of eurozone economic activity, with few signs of any imminent improvement. The Markit Flash Eurozone PMI – which is based on approximately 85-90% of normal final monthly replies – slipped to a 16-month low of 52.9 in May, down from 53.0 in April. With the PMI having averaged 53.2 in the opening quarter, the latest two months’ weak data suggest that economic growth has likely slowed in the second quarter. The PMI is signalling lacklustre GDP growth of only 0.3% in the second quarter.

With new business growth also sliding to the lowest since January 2015, the survey data point to a strong likelihood of output growth remaining subdued or even weakening further in June.

The rate of business activity expansion in the dominant service sector was unchanged for a third successive month, but the sector reported the smallest rise in new business since January 2015 despite many firms continuing to offer price reductions to boost sales. Expectations about future business activity also dipped to a ten-month low.

The rate of manufacturing output growth was meanwhile the second-weakest since February 2015. Growth of new orders received by factories also eased. Producers reported that domestic market conditions remained tough and softer international trade flows led to the smallest rise in new export business for 16 months.

Slightly better news was provided on the labour market. Eurozone employment rose for the nineteenth month running in May, led by services though factories also reported a modest rise in headcounts. The overall rise in employment was the largest since February.

Price gauges also ticked higher. Input costs rose at the fastest pace since July 2015 as a substantial increase at service providers (driven to a large extent by rising wages and oil prices) offset a further reduction in manufacturing. The decline in manufacturers’ purchasing costs was nonetheless the slowest in nine months, representing a further firming of some commodity prices (notably oil).

Although average selling prices continued to fall in May, the rate of decrease was the lowest in the year-to-date. Manufacturers and service providers again both typically reported that price discounts were offered to win sales in response to softer market conditions.

Growth in Germany continued to strengthen across both manufacturing and services in May, with the overall pace of expansion reaching its highest since the end of last year. France also continued its shift out of stagnation, with economic output rising at the fastest pace for seven months (but still below the euro area average), as faster services growth offset an ongoing manufacturing decline.

However, the accelerations in France and Germany were offset by a further cooling of the rate of expansion outside of the big-two nations to a 17- month low.