Manufacturing Extends Recovery with Increased Demand

Manufacturing

Source: http://www.flickr.com/photos/usnationalarchives/

Manufacturing growth eased in August, according to Markit’s final U.S. Manufacturing Purchasing Managers’ Index. The PMI declined from 53.7 in July to 53.1 in August, still indicating growth but at a slower rate than before. The decline was led by accelerating contraction in the stocks of purchases and stocks of finished goods components as firms reduced inventories. The backlogs of work component also fell into contraction between July and August.

Declines were also registered in major components like output and new export orders, which both expanded for the month but at a slower rate than before. Input prices also continued to climb, with increases in the price of raw materials like oil and steel, but overall inflation was below a recent peak seen in July. Responding to these price pressures, output prices increased more quickly, but, overall, movement was relatively slow.

Importantly, the new orders component increased, signaling expansion at a faster rate than before.

Markit chief economist Chris Williamson said in the report:

“The downturn in the headline PMI is a disappointment, suggesting that there is a risk that the goods-producing sector is stalling. However, a more encouraging picture emerges if we look at the details. In particular, inflows of new orders — a useful guide to future production — are growing at the fastest rate for seven months. At the same time, inventories of finished goods showed the largest fall since 2009 as some companies reported that demand often exceeded production. Factories will need to ramp up production to replace depleted inventories given this order book growth.”

All told, the U.S. manufacturing sector seems to have entered a modest but steady recovery. Alongside Markit’s national-level PMI report, various regional barometers showed increased manufacturing activity. Most recently, the Chicago Business Barometer showed an increase in new orders in August and a 0.7 percentage point increase in the overall index to 53. However, while the index is above breakeven at 53, the reports highlight how fragile the recovery has been to date — that growth remains below the 10-year average of 55.9.

At the end of August, the Federal Reserve Bank of Richmond also reported that manufacturing conditions in its region — the Fifth District — improved in August.

Richmond Manufacturing

Source: Federal Reserve Bank of Richmond

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