Markit U.S. Manufacturing PMI Drops to Three-month Low

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U.S. manufacturers signaled another moderate upturn in both production volumes and incoming new work during September, but the latest survey indicated a further loss of growth momentum from July’s recent peak. Softer overall growth was attributed to generally subdued client demand, alongside a drop in new export sales for the first time in four months. 

At the same time, manufacturers sought to streamline their inventories of finished goods, with the pace of stock depletion the fastest since November 2015. The latest survey also pointed to cautious staff hiring strategies, although the rate of job creation picked up from August’s recent low.

The seasonally adjusted final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 51.5 in September (flash: 51.4), down slightly from 52.0 in August, to signal the weakest improvement in overall business conditions since June. Slower rates of output and new order growth were the main factors weighing on the headline index, which more than offset a stronger contribution from the staff hiring component.

September data highlighted that production growth eased to a three-month low, driven by a weaker upturn in new work and greater efforts to streamline stocks of finished goods. The latest increase in new business volumes was the slowest seen so far in 2016. Some survey respondents commented on delays to decision making among clients ahead of the presidential election. 

Moreover, there was an additional drag from export sales, with new work from abroad falling fractionally in September, which contrasted with the solid expansion seen in August. Manufacturers noted  that the strong dollar continued to exert a negative influence on new export orders. 

Softer new business growth resulted in more cautious inventory policies across the manufacturing sector. Stocks of finished goods decreased for the fourth month running and at the fastest pace since late-2015. Pre-production inventories also fell in September, but the rate of decline was only marginal.

Despite another slowdown in growth momentum, the latest survey signalled a marginal increase in backlogs of work at manufacturing firms. This was generally linked to the launch of new products and, in some cases, subdued jobs growth in recent months. September data indicated that payroll numbers increased more quickly than in August. However, the pace of staff hiring remained weaker than the average since the jobs rebound began in early-2010.

Meanwhile, latest survey data pointed to only a slight rise in average cost burdens at manufacturing firms. This provided some scope to stimulate demand through price discounting. Although only marginal, the latest fall in factory gate charges was the fastest since April.

Comment Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS  Markit said:  “Manufacturing growth slowed to a crawl in September, suggesting the economy is stuck in a soft-patch amid widespread uncertainty in the lead up to the presidential election. “The survey saw firms pulling back on expanding production and focusing instead on cost-cutting, as inflows of new business slowed to the weakest seen so far this year.  “Any growth is largely being driven by the consumer, in turn helped by tail-winds of low interest rates, low inflation and a solid labour market.  “Business spending, in contrast, is being subdued  by the headwinds of uncertainty about the economic outlook, cost-driven inventory reduction and the strong dollar, the latter linked to yet another drop in exports.”