MANUFACTURING PMIs
USA: Renewed expansions in output and new orders as cost pressures soften
Operating conditions across the US manufacturing sector remained relatively subdued in September, according to latest PMITM data from S&P Global. Although output and new orders returned to growth during the month, rates of expansion were historically muted. Nonetheless, firms expanded their workforce numbers at the fastest pace since March, although labor shortages continued to hamper firms’ ability to work through incoming new orders. Outstanding business rose again and at a quicker rate. Concerns regarding inflation and client purchasing power weighed on expectations, which dipped from August, and input buying.
At the same time, cost pressures softened amid reports of lower prices for some inputs. Although slower than those seen earlier in the year, the rate of selling price inflation picked up slightly as firms continued to pass-through higher cost burdens to customers.
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI™) posted 52.0 in September, up from 51.5 in August and broadly in line with the earlier release ‘flash’ estimate of 51.8.The headline index was above the 50.0 neutral mark, as has been the case for the last 27 months, but continued to signal muted improvements in the health of the manufacturing sector.
The slight uptick in the headline reading was supported by renewed expansions in output and new orders at the end of the third quarter. Greater production was linked to increased client demand. The rate of growth was the quickest since May despite being slower than the series trend and only marginal.
New orders rose for the first time for four months in September, albeit at only a mild pace. Companies noted the acquisition of new customers and an improvement in demand conditions. The rate of expansion was much slower than those seen earlier in the year, however, and well below the series trend amid cost-cutting efforts at clients.
At the same time, new export orders fell further as challenging economic conditions and a strong US dollar weighed on foreign customer demand.
On the price front, input costs rose at a slower pace in September. The rate of inflation was still historically elevated amid reports of hikes in energy and material costs, but eased to the softest since January 2021 as inputs such as steel, plastics and lumber reportedly fell in price.
In an effort to drive sales, manufacturers registered a softer increase in selling prices compared to earlier in the year. That said, the pace of charge inflation ticked up from August as firms sought to pass through higher cost burdens to clients.
Supporting the softening of cost pressures was the least marked deterioration in vendor performance for two years at the end of the third quarter. Reports of greater input availability and less severe transportation delays contributed to greater supply chain stability.
Nonetheless, input buying fell at a quicker pace and preproduction inventories were depleted for the first time since February 2021. Stocks of finished items increased marginally as some firms noted lower than expected new order inflows.
Meanwhile, employment rose at the sharpest pace since March in September. Labor shortages were nonetheless evident, leading to another rise in backlogs of work, as firms stated that job creation stemmed from greater production requirements.
Manufacturing firms remained positive on balance regarding the year ahead outlook, but the degree of confidence dipped from August. Concerns surrounding inflation and client purchasing power weighed on sentiment which was below the series trend.
The ISM:
The September Manufacturing PMI registered 50.9 percent, 1.9 percentage points lower than the 52.8 percent recorded in August. (…) the September index reading reflects companies adjusting to potential future lower demand. The New Orders Index returned to contraction territory at 47.1 percent, 4.2 percentage points lower than the 51.3 percent recorded in August. (…) After a single month of expansion, the Employment Index contracted at 48.7 percent, 5.5 percentage points lower than the 54.2 percent recorded in August. The New Export Orders Index contracted at 47.8 percent, down 1.6 percentage points compared to August’s figure of 49.4 percent. This is the index’s lowest reading since June 2020, when it registered 47.6 percent.
WHAT RESPONDENTS ARE SAYING
- “Concerns of global economic slowdown are growing, and (we are) experiencing some customers pulling back orders.” [Chemical Products]
- “Production is steady, allowing reduction of backlog amidst slightly softened demand.” [Transportation Equipment]
- “Almost all suppliers are experiencing lead times growth. It seems no one wants to keep inventory on hand anymore.” [Food, Beverage & Tobacco Products]
- “Business is flat to down due to inflation and interest rates. Hard to find and keep employees due to wage increases by competitors.” [Fabricated Metal Products]
- “Supply chain constraints on many items are still an issue; staffing on the production side continues to be a significant problem. In contrast, we have more stock than needed on some key items — specifically imports — and have begun reducing open purchase orders and decreasing extended forecasts on those items in order to bleed down inventory.” [Machinery]
- “Business continues to be strong. Some commodities within the supply chain are starting to stabilize, while others are still causing disruption for production. Electrical and wiring components continue to cause significant issues. (We) cannot run as consistently as we would like.” [Electrical Equipment, Appliances & Components]
- “Quotes and orders still strong; however, we are not able to accept any new orders for shipment (for the rest of) 2022 due to motor and electronic component shortages.” [Miscellaneous Manufacturing]
- “The supply chain is still stressed, and it challenges our manufacturing plants for uptime. We have strong demand and need to run.” [Nonmetallic Mineral Products]
- “Business is still strong; raw materials are becoming more available, and some raw materials prices are falling.” [Plastics & Rubber Products]
The two surveys are coming back more in line, indicating subdued and spotty growth in demand and employment.
- The Goldman Sachs Analyst Index, which includes service as well as manufacturing industries, tallies GS analysts about their assessments of their respective industries: “The shipments component declined substantially, the new orders component declined into contractionary territory, and the exports component declined to its lowest level since June 2020, while the employment and wages components both increased. (…) 45% of surveyed analysts indicated that higher labor costs were the main driver of price increases so far in 2022, while around 40% indicated higher input costs and roughly 5% indicated higher margins.”
Excluding the initial pandemic lockdowns, eurozone manufacturers have not seen a collapse of demand and production on this scale since the height of the global financial crisis in early-2009. Worse looks set to come, with orders slumping at a significantly steeper rate than production is being cut. Further steep production cuts look to be on the cards in the coming months unless demand revives.
The euro area’s manufacturing sector fell deeper into contraction territory during September, latest PMI® data from S&P Global showed, due to further slides in both output and new orders. In some cases, production volumes were reduced in response to high energy prices, while many firms downwardly adjusted their operating schedules in line with lower order books. Demand for eurozone goods sank sharply in September as high inflation and economic uncertainty reportedly squeezed client appetite. Business confidence subsequently fell to its lowest level since May 2020, leading firms to cut purchasing activity further in anticipation of more challenging conditions.
Meanwhile, inflationary pressures accelerated in September. Although pressures arising from material shortages had reportedly faded slightly, many companies remarked on the rising costs for energy.
The S&P Global Eurozone Manufacturing PMI® fell to 48.4 in September, from 49.6 in August, signalling a further worsening of operating conditions for euro area goods producers. Moreover, the headline index slumped to its lowest level since June 2020.
Ireland was the only monitored euro area country to record a manufacturing PMI in expansion territory during September. France and Germany – the two largest eurozone economies – both recorded the worst deteriorations in manufacturing sector conditions at the end of the third quarter, with their respective PMIs at the lowest levels since the first wave of the COVID-19 pandemic in the first half of 2020.
For a fourth successive month, manufacturing output levels fell across the euro area. The reduction was solid overall and of a similar strength to that seen in August. Lower production was primarily a consequence of fading demand, according to panellists, although others commented on the adverse impact of ongoing supply shortages. In some cases, factory output was restricted as some firms looked to curb energy usage amid soaring prices.
The downturn in manufacturing new orders continued in September and accelerated from the previous month. Overall, the decrease in demand was the sharpest since May 2020 and reflected a broad weakening of client appetite. High prices reportedly deterred customer purchases, although other companies commented on the adverse impact from economic uncertainty.
With the rate of contraction in new orders exceeding that for output, euro area manufacturers were able to make inroads into their backlogs during September. In fact, the level of work outstanding fell at the quickest rate in over two years. Employment growth continued nonetheless, but slipped to its weakest since February 2021.
In a further sign of distress, eurozone manufacturers reduced their purchases of inputs for a third month and to the quickest extent since June 2020. This was in response to lower output requirements, and as part of efforts to prevent overstocked warehouses. Indeed, pre-production inventories rose once again in September despite the sustained drop in buying activity. According to firms, this reflected improving raw material availability, although others mentioned an unintentional expansion due to poor sales.
Meanwhile, supplier delivery delays were at their least widespread for almost two years in September as improved raw material availability and a drop in demand helped ease pressures on vendors.
Nevertheless, rates of input cost and output price inflation accelerated in September, the first time since April this has been the case. According to panellists, soaring energy prices were a key factor behind the intensification of cost pressures. In turn, factories passed on higher expenses to their clients through stronger increases in selling charges.
Lastly, the level of business confidence slipped back into negative territory in September. In fact, euro area manufacturers were at their most pessimistic since May 2020. Survey respondents attributed their downbeat assessment of the year ahead to soaring energy costs, the ongoing war in Ukraine and fears of a recession.
Top Fed Official Warns of More Persistent Price Pressures ‘Tighter monetary policy has begun to cool demand and reduce inflationary pressures, but our job is not yet done,’ said New York Fed President John Williams
Despite some signs of easing inflation, underlying price pressures have too much momentum and will likely require a period of higher interest rates, a top Federal Reserve official said Monday. (…)
Mr. Williams compared inflation to an onion, with the prices of globally traded commodities such as lumber, steel, and oil, serving as the outer layer, and durable goods such as appliances, cars, and furniture serving as a middle layer. Declining commodities prices and improving supply chains should slow inflation for many goods, Mr. Williams said.
“Unfortunately, that’s it for the good news on inflation,” he said. “The fact is, lower commodity prices and receding supply-chain issues will not be enough by themselves to bring inflation back to our 2% objective.” (…)
“Therein lies our biggest challenge…. Inflation pressures have become broad based across a wide range of goods and services,” Mr. Williams said. “Demand for labor and services is far outstripping available supply. This is resulting in broad-based inflation, which will take longer to bring down.” (…)
S&P Global’s findings do not point to much goods deflation just yet:
Although the latest price and supply indicators from S&P Global continued to point to relatively mild cost pressures across the global manufacturing sector during September, reports of price rises were up compared to August and were slightly above the long-run trend. Greater energy costs were a key driver of this, with reports of higher energy prices running at over 14 times the normal level as the war in Ukraine continued to impact energy markets. Increased semiconductor prices were also cited as a key source of inflationary pressure.
There were further signs of supply chain pressures easing,
however, with total supplier shortages at their least severe for nearly two years. Nevertheless, only 11 out of 20 raw material categories noted a reduction in supplier shortfalls, as shortages worsened for key materials such as oil, copper and semiconductors.
Vehicles Sales Increased to 13.49 million SAAR in September Wards Auto estimates sales of 13.49 million SAAR in September 2022, up 2.3% from the August sales rate, and up 9.8% from September 2021.
- That Covid Goods Boom is Going Bust, Bloomberg Trade Tracker Shows You can see the suffering illustrated on the Bloomberg Trade Tracker, where several of the 10 primary gauges floated in “below normal” range at the start of October and none looked good relative to their long-run averages.
2%+ Starts to a Quarter: A Baker’s Dozen
(…) The last time the index kicked off a quarter with a 2%+ gain was in Q1 of 2013, and the last time it started Q4 with a 2%+ advance was 19 years ago in 2003. If the S&P 500 manages to hold onto its current gains, it would be just the 6th such gain of 3%+ to kick off a quarter since 1953. (…)
Of the twelve different 2%+ rallies highlighted, the S&P 500 rallied an average of an additional 2.1% (median: 2.5%) for the rest of the quarter with gains two-thirds of the time. Of those twelve different occurrences, though, the range of returns varied widely with the best rest-of-quarter performance being a gain of 18.7% (Q1 1975) while the largest rest-of-quarter decline was 14.4% in Q1 2009.
At the bottom of the table, we also show the average ‘rest of quarter’ returns after the first day of trading for all quarters since 1953. With an average gain of 2.0% (median: 2.7%) and gains 66.5%, the returns are nearly the same as returns following strong starts to the quarter. In other words, based on the results following the 12 prior occurrences, a strong start to the quarter tells you very little about the rest of the quarter’s performance. Click here to learn more about Bespoke’s premium stock market research service.
U.S. Seeks to Further Restrict Chip Exports to China The Biden administration’s action is aimed at preventing China from making high-end semiconductors, sources say.
The Biden administration is preparing new export controls on semiconductors and the machines to make them, the latest push in its effort to deny China the ability to make the fastest, most cutting-edge circuitry possible, according to people familiar with the situation.
The administration in recent weeks has already placed new restrictions on some U.S. exports of chips used for artificial-intelligence calculations and manufacturing equipment used to make some of the most powerful number-crunching chips.
But more export curbs are under consideration, including ones targeting high-end memory-chip manufacturing capabilities and advanced components that go into some of the most cutting-edge chip-making tools, according to the people familiar with the matter. Advanced quantum computing is another target under discussion, they said. (…)
Many of the expected actions the Biden administration is set to announce are likely to expand restrictions that it already has taken against individual companies, by making them apply industrywide, according to one of the people familiar with the situation.
For example, Nvidia Corp. disclosed in August that it could lose as much as $400 million in quarterly sales after the U.S. imposed new licensing requirements on shipments of some of its most advanced chips to China. The U.S. imposed the requirement to address the risk that the products could reach the hands of military users, Nvidia said.
Kim Kardashian Pays $1.26 Million to Settle SEC Probe The entrepreneur and reality-TV star failed to disclose compensation received for promoting EMAX tokens, the SEC said.
Axios explains:
Kim Kardashian was fined $1.26 million yesterday for touting crypto schemes — even as much more high-profile pitches from the likes of Matt Damon and Larry David have gone unpunished. The seeming double standard is a function of a subtle yet crucial distinction in securities law, Axios’ Felix Salmon writes.
Celebrity crypto endorsements drew millions of Americans into the crypto market at the beginning of this year, just before prices cratered. (…)
Legally speaking, it’s fine for celebrities and influencers to endorse investment opportunities, including crypto investments. Where Kardashian crossed the line was when she endorsed a crypto asset security.
- The height of the crypto advertising boom was the 2022 Super Bowl, where companies like FTX and Crypto.com spent untold millions touting their websites as a place to buy crypto — and, implicitly, to get rich doing so.
- Kardashian’s relatively low-budget 2021 Instagram post, by contrast — she was paid just $250,000 for it — touted a specific coin, EthereumMax, that the SEC has determined qualifies as a security. That brings it under SEC jurisdiction, which is much stricter than the FTC regulations governing most advertising.
If you’re endorsing a company, the only rules that apply are the relatively lax ones from the FTC.
- If you’re shilling a security, then disclosing that you were paid — as Kardashian did with an #AD hashtag — is not enough; you also need to disclose how much you were paid.