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IHS Markit US Manufacturing PMI™

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August PMI signals strong growth despite dipping to nine-month low

KEY FINDINGS
PMI indicates strong improvement in operating
conditions
Rates of output and new order growth ease but remain
solid
Inflationary pressures soften

August data indicated a strong overall improvement in the health of the
U.S. manufacturing sector. The upturn was supported by further rises in
output and new orders, and a renewed increase in export sales. That
said, production rose at the weakest rate for almost a year. The latest
upturn in new business drove solid increases in employment and backlogs.
Meanwhile, rates of both input price and output charge inflation
softened to six- and five-month lows, respectively. On a positive note,
business confidence improved and reached a three-month high.

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IHS Markit US Manufacturing PMI (Source: IHS Markit)

IHS Markit US Manufacturing PMI (Source: IHS Markit)

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing
Managers' Index™ (PMI™) registered 54.7 in August, down from 55.3 in
July. Although signalling the weakest improvement in operating
conditions since last November, the PMI indicated a strong overall
manufacturing performance. Moreover, the latest figure remained well
above the long-run series average.

Output growth across the goods-producing sector remained strong, despite
the rate of expansion softening to an 11-month low. Panellists that
reported higher output generally linked this to greater new order
volumes.

Similarly, new business rose at a slightly slower, albeit still strong,
rate in August. Anecdotal evidence stated that greater new orders from
home and abroad had driven growth. Moreover, new business from abroad
returned to expansionary territory. However, some panellists noted that
client demand was relatively lacklustre when compared to the start of
the year, leading to a slightly weaker overall upturn.

Consequently, rates of employment and backlog growth remained solid.
This was despite rates of growth softening to four-month lows. Anecdotal
evidence commonly stated that job creation stemmed from increased
production requirements and greater efforts to recruit skilled labour.

On the price front, manufacturers signalled a marked rise in input
costs. Although the rate of inflation softened to a six-month low, it
remained marked and was linked to new trucking regulations, higher raw
material prices (in part driven by tariffs), and supply shortages
(especially for electronics components).

Average charges rose strongly, with respondents reportedly partly
passing higher costs on to clients in order to protect profit margins.
Although dipping to a five-month low, the rate of inflation remained
well above the long-run series trend.

Meanwhile, supplier delivery times lengthened further in August.
Although lead times increased to the weakest extent since February, the
rate of deterioration remained historically marked. Panellists continued
to report widespread stockpiling of inputs, with buying activity rising
solidly.

Finally, expectations towards output over the coming 12 months improved.
The degree of confidence reached a three-month high.

COMMENT

Chris Williamson, Chief Business Economist at IHS Markit, said:
"Manufacturers reported the smallest output rise for almost a year in
August, suggesting production growth could be as weak as 0.2% in the
third quarter.

"Exports remain the key source of weakness for producers, with foreign
orders barely rising in August after two months of modest declines. The
strongest growth is being seen in consumer-facing companies, reflecting
robust domestic demand, in turn linked to the strong labour market and
buoyant consumer confidence, though even here growth has slowed.

"However, at least some of the slowdown compared to earlier in the year
reflects production being curbed by widespread shortages of inputs,
hauliers and labour, leading to a further build-up of backlogs of work.
For producers of investment goods such as plant and machinery, order
books are backing-up at a rate not exceeded in over ten years.

"Tariffs and trade wars were also commonly cited as factors behind
companies building safety stocks of inputs to ensure supply or lock-in
lower prices, exacerbating supply shortages and also driving prices even
higher. Looking at the survey responses, almost two-thirds (64%) of
companies reporting higher input prices explicitly blamed tariffs as the
cause of increased costs. Almost one-in-three went on to cite tariffs as
the cause of having to hike prices to customers. Overall price pressures
eased somewhat, however, which if sustained could take some heat off
consumer price inflation in coming months."

Methodology

The IHS Markit US Manufacturing PMI™ is compiled by IHS Markit from
responses to questionnaires sent to purchasing managers in a panel of
around 800 manufacturers. The panel is stratified by detailed sector and
company workforce size, based on contributions to GDP.

Survey responses are collected in the second half of each month and
indicate the direction of change compared to the previous month. A
diffusion index is calculated for each survey variable. The index is the
sum of the percentage of ‘higher' responses and half the percentage of
‘unchanged' responses. The indices vary between 0 and 100, with a
reading above 50 indicating an overall increase compared to the previous
month, and below 50 an overall decrease. The indices are then seasonally
adjusted.

The headline figure is the Purchasing Managers' Index™ (PMI). The PMI is
a weighted average of the following five indices: New Orders (30%),
Output (25%), Employment (20%), Suppliers' Delivery Times (15%) and
Stocks of Purchases (10%). For the PMI calculation the Suppliers'
Delivery Times Index is inverted so that it moves in a comparable
direction to the other indices.

Underlying survey data are not revised after publication, but seasonal
adjustment factors may be revised from time to time as appropriate which
will affect the seasonally adjusted data series.

August 2018 data were collected 13-24 August 2018.

For further information on the PMI survey methodology, please contact economics@ihsmarkit.com.

About IHS Markit

IHS Markit (NASDAQ:INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 business and government customers, including 80 percent
of the Fortune Global 500 and the world's leading financial institutions.

IHS Markit is a registered trademark of IHS Markit Ltd. and/or its
affiliates. All other company and product names may be trademarks of
their respective owners © 2018 IHS Markit Ltd. All rights reserved.

About PMI

Purchasing Managers' Index™ (PMI™) surveys are now available for over 40
countries and also for key regions including the eurozone. They are the
most closely watched business surveys in the world, favoured by central
banks, financial markets and business decision makers for their ability
to provide up-to-date, accurate and often unique monthly indicators of
economic trends. To learn more go to ihsmarkit.com/products/pmi.html.

Disclaimer

The intellectual property rights to the data provided herein are owned
by or licensed to IHS Markit. Any unauthorised use, including but not
limited to copying, distributing, transmitting or otherwise of any data
appearing is not permitted without IHS Markit's prior consent. IHS
Markit shall not have any liability, duty or obligation for or relating
to the content or information ("data") contained herein, any errors,
inaccuracies, omissions or delays in the data, or for any actions taken
in reliance thereon. In no event shall IHS Markit be liable for any
special, incidental, or consequential damages, arising out of the use of
the data. Purchasing Managers' Index™ and PMI™ are either registered
trade marks of Markit Economics Limited or licensed to Markit Economics
Limited. IHS Markit is a registered trademark of IHS Markit Ltd. and/or
its affiliates.

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