Market Overview

IHS Markit US Manufacturing PMI™

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PMI slips to 15-month low in December

Key findings:

  • Weakest improvement in operating conditions since September 2017
  • New order growth eases to 15-month low
  • Business confidence lowest since October 2016

December data indicated a slower, albeit still solid, improvement in the
health of the U.S. manufacturing sector. The headline PMI dipped to a
15-month low amid a weaker rise in new business and the joint-softest
expansion in output since September 2017. At the same time, the pace of
job creation eased to an 18-month low, despite a further rise in
backlogs. Notably, business confidence among manufacturers fell again in
December, with the degree of optimism dipping to the lowest since
October 2016. Meanwhile, inflationary pressures eased at the end of 2018.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing
Managers' Index™ (PMI™) posted 53.8 in December, down from 55.3 in
November. The latest headline figure suggested a weaker, but still
strong, improvement in operating conditions across the goods producing
sector. Although ending the year with a softer overall expansion, the
final quarterly average of 2018 was strong and quicker than that seen in
2017.

Production growth remained solid in December, and at a rate that matched
that seen in November. The rise in output was attributed to greater new
order volumes. That said, the upturn was nonetheless the joint-weakest
in 15 months.

Following a slight pick up in November, new order growth eased in
December. Though strong, the pace of expansion was the weakest since
September 2017. Although some firms stated that the upturn was driven by
new order inflows from newly acquired clients, others cited concerns
surrounding a drop in client demand compared to earlier in the year.

Conversely, new export business grew at an accelerated pace in December.
New orders from abroad increased for the fifth successive month and at
the fastest rate since January amid stronger foreign client demand.

That said, a weaker overall rise in new orders led to a drop in business
confidence among manufacturing firms in December. The degree of optimism
was strong, but well below the long-run series average. Positive
sentiment was dampened by concerns surrounding the longevity of new
business growth. Moreover, future output expectations were at their
lowest since October 2016.

Despite a moderate rise in backlogs in December, the rate of job
creation softened to an 18-month low. Although firms noted an increase
in workforce numbers following greater production requirements, others
suggested that low rates of employee retention had weighed on growth.

Meanwhile, rates of both input price and output charge inflation eased
in December. Greater cost burdens were reportedly due to raw material
stockpiling among manufacturers, shortages of electronics components and
the ongoing impact of tariffs. That said, the rate of inflation dipped
to an 11-month low. Factory gate prices meanwhile rose at the weakest
rate in 2018.

Commenting on the PMI data, Chris Williamson, Chief Business
Economist at IHS Markit, said:

"Manufacturers reported a weakened pace of expansion at the end of
2018, and grew less upbeat about prospects for 2019. Output and orders
books grew at the slowest rates for over a year and optimism about the
outlook slumped to its gloomiest for over two years. The month rounds of
a fourth quarter in which manufacturing production is indicated to have
risen at only a modest annualised rate of about 1%.

"Some of the weakness is due to capacity constraints, with producers
again reporting widespread difficulties in finding suitable staff and
sourcing sufficient quantities of inputs. However, the survey also
revealed signs of slower demand growth from customers, as well as rising
concerns over the impact of tariffs. Just over two thirds of
manufacturers reporting higher costs attributed the rise in prices to
tariffs.

"Growth was led by strengthening demand for consumer goods, and
robust growth was also reported for investment goods such as plant and
machinery. But producers of intermediate goods – who supply inputs to
other manufactures – reported the weakest rise in new orders for over
two years, hinting at increased destocking by their customers.

"A shift to inventory reduction was highlighted by purchasing
activity in the manufacturing sector rising at the weakest rate for one
and a half years in December, providing further evidence that companies
have become increasingly cautious about spending amid rising uncertainty
about the outlook."

OUTPUT

Production across the U.S. manufacturing sector increased solidly in
December, and at a rate that matched that seen in November. Panellists
widely linked the latest expansion to greater new order volumes. That
said, the upturn was the joint-weakest since September 2017.

NEW ORDERS

New orders received by goods producers rose further in December,
although the rate of expansion softened for the first time in four
months. Notably, the rate of growth was the slowest since September 2017
and dipped below the series trend. Where an increase was reported,
panellists attributed this to greater new order inflows from new client
wins.

NEW EXPORT ORDERS

In contrast to the trend for new orders, new business from abroad
increased at a faster pace in December. This also extended the current
sequence of expansion to five months. Anecdotal evidence attributed the
rise to stronger foreign client demand. Although only moderate, the
upturn was the fastest since January.

BACKLOGS OF WORK

The level of work-in-hand at U.S. manufacturers continued to increase in
December, further extending the current sequence of growth that began in
August 2017. A number of monitored firms suggested that greater new
order inflows and a further deterioration in vendor performance
contributed to the latest rise in backlogs.

STOCKS OF FINISHED GOODS

The seasonally adjusted Stocks of Finished Goods Index dipped below the
50.0 no change mark for the third time in the last four months in
December. The marginal decline in post-production inventories was linked
by panellists to delays in the receipt of inputs and the fast shipment
of finished goods.

EMPLOYMENT

Workforce numbers continued to grow across the U.S. manufacturing sector
in December. Where an increase in staffing levels was registered, some
firms attributed this to efforts to clear backlogs following a sustained
rise in new business. That said, others noted that the retention of
employees was low, which meant the overall rate of job creation eased to
the weakest in eighteen months.

OUTPUT PRICES

Average output charges set by goods producers rose at a solid rate in
December. The increase in selling prices was generally attributed to the
pass-through of higher costs to clients. That said, the rate of
inflation softened for the second successive month and was the slowest
in 2018.

INPUT PRICES

Input price inflation softened in December, but remained sharp overall.
Where a rise in purchasing costs was reported, panellists linked this to
increased demand for inputs following expectations of further price
increases, the ongoing impact of tariffs and shortages of electronics
components. Overall, the rate of input price inflation eased to an
eleven-month low, but remained above the survey average.

SUPPLIERS' DELIVERY TIMES

Suppliers' delivery times continued to lengthen in December. Longer lead
times were widely attributed to supplier capacity constraints and
greater demand for inputs which partly stemmed from stockpiling activity
among some firms in expectation of further tariffs and input price
rises. That said, the extent to which vendor performance deteriorated
was the least marked since January.

QUANTITY OF PURCHASES

Purchasing activity among goods producers rose again in December,
extending the current trend of expansion that began in May 2016.
Increases in input buying were attributed by panellists to greater new
order volumes and efforts to stockpile inputs. In line with the trend
for new business, however, the rate of growth softened. Furthermore, the
upturn was the weakest in a year-and-a-half.

STOCKS OF PURCHASES

Stocks of purchases held by U.S. manufacturers increased for the
nineteenth successive month in December. The marginal rise in
pre-production inventories was attributed to greater client demand and
increased efforts to stockpile following further delays in supplier
deliveries.

FUTURE OUTPUT

Output expectations for the year ahead deteriorated in December, with
the level of sentiment among the weakest seen in the series history.
While optimism stemmed from a sustained rise in new business, others
expressed concerns surrounding the longevity of increased client demand.
Moreover, the level of business confidence was the lowest since October
2016.

NOTE

The intellectual property rights to the U.S. Manufacturing PMI™ 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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