U.S. goods producers saw a further upturn in overall business conditions during August, though the rate of improvement was softer than seen in July. While output continued to rise markedly, total new work rose at a slower pace and employment expanded at the weakest rate in four months. Meanwhile, companies reported near-stagnant price trends overall, with input prices rising only marginally and companies leaving their prices charged unchanged from the previous month.
The seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered at 52.1 in August, down from July’s nine-month high of 52.9. The PMI has now pointed to improving business conditions in each month since October 2009. However, August’s reading pointed to a moderate rate of improvement that was weaker than the post-crisis average. A further solid increase in output was the most positive influence on the latest PMI reading. In contrast,
slower growth in total new work and employment, alongside further cuts to inventories, had dampened the overall headline figure.
U.S. manufacturers signalled increased output for the third month running in August. Furthermore, the rate of expansion remained solid overall, having edged up slightly from July to a nine-month high. Anecdotal evidence suggested that new product launches, stronger underlying demand and new marketing strategies had supported production growth in August.
Although solid growth of output was sustained, total new orders expanded at a slower rate in August. Data indicated that relatively subdued domestic demand was a reason behind softer growth in overall new work, as export sales increased at the fastest pace in 23 months. While some companies commented that a number of clients had adopted a wait-and-a-see approach until the outcome of the presidential election, others mentioned that total new work had been boosted by new foreign client wins over the latest survey period.
Manufacturing employment increased only slightly during August. Furthermore, it was the weakest rate of payroll growth seen for four months. Greater staff numbers were generally linked to higher amounts of new work. At the same time, other firms mentioned that efforts to raise efficiency had weighed on overall jobs growth.
August survey data pointed to a further rise in purchasing activity, which was generally attributed to greater amounts of incoming new work. In line with the trend for new orders, however, the rate of expansion slowed since July. Meanwhile, stocks of finished goods and purchased items both fell as companies generally adopted cautious inventory policies.
Average cost burdens faced by U.S. manufacturers rose only slightly during August. Furthermore, the rate of input price inflation was the slowest seen in the current five-month sequence of increasing costs.
Prices charged for U.S. manufactured goods were unchanged in August, thereby ending a three month sequence of increase. According to anecdotal evidence, greater competition for new work had weighed on the overall pricing power of firms in the latest survey period.
Chris Williamson, Chief Business Economist at IHS Markit:
The August drop in the PMI is a disappointment but less worrying when looked at in the context of July’s better than expected reading. Taking the July and August readings together suggests that manufacturing is enjoying its best growth so far this year in the third quarter, and should help drive stronger GDP growth.
With August seeing the largest rise in exports for almost two years, the improved trade performance should also help drive faster economic growth.
However, a slowdown in overall order book growth is a warning light that domestic demand has waned in August, and the pull-back in hiring suggests manufacturers have become increasingly cautious about the outlook. Inflationary pressures have meanwhile eased.