Note: I am travelling in Asia until April 24. Limited equipment and different time zones will limit the frequency and depth of my postings.
FLASH PMIs
USA: Output growth slows amid signs of demand weakness
The headline S&P Global Flash US PMI Composite Output Index dropped to 50.9 in April from 52.1 in March. Although continuing to signal an increase in business activity during the month, the latest data indicated only a slight expansion and one that was the softest since December. (…)
Slower increases in activity were recorded across both the manufacturing and services sectors, with rates of growth easing to three- and five-month lows respectively.
Output growth cooled in line with demand weakness as new orders decreased for the first time in six months, albeit dropping only modestly. Falling new business was signalled among manufacturers and service providers alike.
Some service providers suggested that elevated interest rates and high prices had restricted demand during the month. Meanwhile, manufacturers often linked lower new orders to inflationary pressures, weak demand and sufficient stock holdings at customers.
International demand held up slightly better than domestic sales, with new export orders remaining unchanged for the second month running.
Concerns about their ability to secure new orders dampened firms’ confidence in the year-ahead outlook for business activity in April. Business sentiment dipped to a five-month low, down in both manufacturing and services, but remained positive overall amid hopes that market conditions will pick up.
Signs of demand weakness impacted hiring plans at companies in the US at the start of the second quarter. A number of survey respondents indicated that they had held off on backfilling positions following the departure of staff. As a result, employment decreased for the first time since June 2020.
The overall reduction in workforce numbers was centered on services, where employment decreased solidly and to the largest extent since mid-2020. In fact, excluding the opening wave of the COVID-19 pandemic, the decline in services staffing levels in April was the most pronounced since the end of 2009. In contrast, manufacturing employment continued to increase modestly.
The drop in staffing levels partly reflected signs that current capacity was sufficient to handle workloads, with backlogs of work decreasing for the third month running and to a larger degree than in March. Input prices continued to rise sharply in April, although the pace of inflation eased from the six-month high seen in March. This was in spite of the fastest increase in manufacturing input costs for a year amid rising raw material prices. Service providers often noted higher staff and shipping costs, though reported the second-lowest overall cost increase for three-and-a-half years.
In line with the picture for input costs, output prices increased at a solid but slower rate during April, the pace of inflation cooling again having accelerated to a ten-month high in March. Prices charged inflation was in line with the series long-run average, though still elevated by pre-pandemic standards. Slower charge inflation was seen across both the manufacturing and services sectors.
The S&P Global Flash US Manufacturing PMI posted 49.9 in April to signal broadly unchanged business conditions over the course of the month. The index was down from 51.9 in March and ended a three-month sequence of improving operating conditions.
US manufacturers drew down their stocks of purchases for the second consecutive month in April, and to a solid degree that was the most marked since August last year. Firms made some efforts to limit the pace of depletion, however, raising their purchasing activity slightly following a fall in the previous survey period.
There remained signs of spare capacity in supply chains amid relatively muted demand for inputs. Suppliers’ delivery times shortened for the third month running. Although modest, the latest improvement in vendor performance was more pronounced than that seen in March.
Finally, stocks of finished goods ticked higher following a fall in the previous month. According to respondents, the slight rise in post-production inventories reflected a slowdown in demand which left firms holding unsold goods.
Commenting on the data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:
“The US economic upturn lost momentum at the start of the second quarter, with the flash PMI survey respondents reporting below-trend business activity growth in April. Further pace may be lost in the coming months, as April saw inflows of new business fall for the first time in six months and firms’ future output expectations slipped to a five-month low amid heightened concern about the outlook.
“The more challenging business environment prompted companies to cut payroll numbers at a rate not seen since the global financial crisis if the early pandemic lockdown months are excluded.
“The deterioration of demand and cooling of the labor market fed through to lower price pressures, as April saw a welcome easing in rates of increase for selling prices for both goods and services.
“Notably, the drivers of inflation have changed. Manufacturing has now registered the steeper rate of price increases in three of the past four months, with factory cost pressures intensifying in April amid higher raw material and fuel prices, contrasting with the wage-related services-led price pressures seen throughout much of 2023.”
Eurozone recovery gains momentum in April, but price pressures also revived
The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, rose from 50.3 in March to 51.4 in April. The latest reading signals a second successive month of rising output after a continual decline over the nine months to February. The April expansion was the strongest since May of last year, though was only modest and well below the pace seen this time last year.
Although service sector output grew for a third successive month, with the rate of increase having gained momentum to register the fastest rise for 11 months, manufacturing output fell across the eurozone for a thirteenth straight month in April to act as a drag on the overall economy. The rate of decline in factory output eased, however, to the weakest for 12 months.
Sector variations were driven by underlying demand conditions. New orders for services rose in April at the fastest pace since May of last year, up for a second straight month, but new orders for manufactured goods fell at an increased rate. The latter have now fallen continually for two years.
By country, Germany notably edged back into growth territory for the first time in ten months as resurgent growth in the service sector was accompanied by a cooling of the manufacturing downturn. France meanwhile reported only a marginal contraction of output, the weakest recorded over the past 11 months, as the first rise in service sector activity since last May helped offset a persistent manufacturing decline. It was the rest of the region which collectively saw the best performance, however, despite growth slowing slightly, as output rose for a fourth consecutive month in April in response to robust growth in the service sector and near-stable manufacturing output.
Employment increased across the eurozone for a fourth month in a row in April after two months of marginal declines at the end of 2023. The rate of net job creation accelerated to the highest since last June. A ten-month high rate of employment growth in the service sector drove the increase, though the pace of headcount reduction in the manufacturing sector also eased to the slowest in seven months. Jobs growth was recorded in France, with the rate of increase reaching a nine-month high, alongside a marginal return to growth in Germany and sustained solid hiring in the rest of the region.
Having briefly lengthened at the start of the year in response to disruptions to Red Sea shipping, manufacturing supplier delivery times shortened for a third successive month in April, improving to the greatest degree since last August. In addition to fewer shipping delays, pressure was taken off supply chains from a further steep reduction in the purchasing of inputs by eurozone manufacturers.
Price pressures intensified slightly in April, remaining elevated by pre-pandemic standards, with higher rates of inflation seen for both input costs and average selling prices.
Average input costs across the goods and service sectors re-accelerated in April after having cooled in March, recording the joint-fastest increase seen over the past year. Although manufacturing input prices continued to fall, helped by improved supply conditions, the decline was the smallest recorded over the past 14 months. The rate of service sector cost inflation meanwhile edged up, albeit remaining below the recent highs seen at the start of the year, with companies often reporting higher wage rates as a key inflation driver alongside greater energy and fuel costs. Especially strong cost growth was seen in the German service sector.
Selling price inflation likewise accelerated in April, reviving from March’s four-month low to run well-above the pre-pandemic long-run average and hint at stubborn inflation pressures. While rates charged by manufacturers fell for a twelfth month in a row, prices levied by service providers rose at an increased rate, continuing to climb at a strong pace by historical standards. Selling price inflation picked up in Germany, France and across the rest of the region, with the latter registering the steepest rate of increase.
Looking ahead, business expectations about the coming 12 months cooled slightly compared to March but was the second-highest recorded over the past 14 months. A pull-back in service sector confidence, to a three-month low, contrasted with improved optimism in the manufacturing sector, where output expectations rose their highest since February of last year. While sentiment nevertheless remained relatively more upbeat in the service sector compared to manufacturing, the gap is now the narrowest for just over two years.
Recent months have seen business confidence improve in response to the expectation of lower interest rates, a moderating cost of living squeeze and signs of recovering household and corporate demand. Manufacturing has also been buoyed by signs of the global inventory cycle starting to become more supportive to demand. However, geopolitical uncertainty and financial market volatility subdued optimism about the year ahead outlook at some firms in April.
