Solid rise in new orders drives further improvement in operating
conditions
Key findings:
- New business growth picks up to three-month high…
- …leading to slightly stronger increase in output
- Employment expands at softest rate since June 2017
LONDON–(BUSINESS WIRE)–U.S. manufacturing firms registered a moderate improvement in operating
conditions in April. Expansions in output and new orders picked up from
March’s recent lows, with new business growth the fastest for three
months. Despite a further rise in backlogs of work, the rate of job
creation was the slowest since June 2017 and only moderate overall, in
part reflecting skill shortages. Expectations towards the coming year
were relatively subdued, down to the lowest seen so far this year.
Meanwhile, inflationary pressures continued to soften for a sixth month
running.
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing
Managers’ Index™ (PMI™) posted 52.6, up slightly from March’s recent low
of 52.4. This signalled that the latest improvement in the health of the
manufacturing sector was the second-slowest since June 2017.
Although faster than that seen in March, the latest upturn in production
across the goods producing sector was among the softest seen in the last
two years and below the series trend. Nonetheless, panellists linked the
sustained rise in output to a further increase in new orders and efforts
to clear backlogs.
New business growth also quickened from March’s recent low in April. The
expansion was the fastest for three months, albeit notably slower than
the 2018 average. Anecdotal evidence suggested the rise in new orders
was due to greater marketing activity and new product launches. Foreign
client demand remained subdued, however. The marginal upturn in export
sales was linked to the acquisition of new clients, but many highlighted
global trade tensions and slowing foreign demand as factors dampening
growth.
Although new business grew at a faster pace, the rate of job creation
eased in April. The rise in payroll numbers was the softest since June
2017, in part because firms struggled to find staff and replace leavers.
The slower jobs growth also reflected subdued confidence among
manufacturers. Output expectations dipped to a four-month low , with
panellists expressing concerns surrounding less robust demand conditions
in 2019 so far.
Meanwhile, manufacturing firms registered a rise in backlogs in April.
The rate of accumulation was the fastest since last November as new
order growth outpaced the increase in output.
On the price front, input price inflation eased for the sixth successive
month and signalled the slowest rise in cost burdens since July 2017.
Subsequently, firms increased their factory gate charges at a softer
pace.
Finally, both pre- and post-production inventories continued to rise in
April. Manufacturing firms reportedly increased their stock holdings
amid forecasts of further new order growth. At the same time, lead times
for inputs lengthened to the smallest extent since June 2017 as
purchasing activity increased only moderately.
Commenting on the PMI data, Chris Williamson, Chief Business
Economist at IHS Markit said:
“Although the PMI ticked higher in April, the survey remains
consistent with manufacturing acting as a drag on the economy at the
start of the second quarter, albeit with the rate of contraction easing.
Historical comparisons indicate that the survey’s output gauge needs to
rise above 53.5 to signal growth of factory production. As such, the
data add to signs that the economy looks set to slow after the stronger
than expected start to the year.
“Employment growth also disappointed as hiring slipped to the lowest
for nearly two years, albeit in part due to firms reporting difficulties
finding staff amid the current tight labour market.
“There was better news on the order book front, however, with inflows
of new business rising and firms signalling an improved export
performance. Unfortunately, on balance, manufacturers seem sceptical
that the rise in demand will persist, with future expectations of output
growth slumping lower in April.
“Both input cost and factory gate price inflation rates meanwhile
eased further, down to the lowest for over one and a half years, hinting
that consumer price inflation rates will have continued to cool in
April.”
OUTPUT
U.S. manufacturing firms continued to register a rise in output in
April, though the rate of expansion remained among the slowest over the
last two years. Where an increase in production was reported, panellists
linked this to greater new order book volumes and efforts to clear
backlogs. At the company size level, large firms recorded the strongest
increase in output.
NEW ORDERS
New business received by manufacturers increased further in April, with
the rate of expansion picking up from March’s recent low. Rising at the
quickest rate since January, the upturn was supported by greater
marketing activity and new product launches. Notably, the increase in
new orders was slightly faster than the series trend.
NEW EXPORT ORDERS
Adjusted for seasonal factors, the New Export Orders Index signalled a
further increase in foreign client demand in April. The rise in new
export sales reportedly stemmed from the acquisition of new clients.
That said, the rate of growth was slower than the series trend and
marginal. At the company size level, the upturn was led by medium sized
firms.
BACKLOGS OF WORK
Backlogs of work at U.S. goods producers increased in April, following
broadly unchanged levels of unfinished business in March. Notably, the
rate of accumulation was the quickest since last November and solid.
Panellists attributed the rise to growth in new orders outstripping that
of output.
STOCKS OF FINISHED GOODS
Goods producers registered a back-to-back monthly increase in
post-production inventories in April. The modest upturn in stock levels
was linked to efforts to build inventories in anticipation of further
new business growth. At the company size level, only small firms
registered a contraction in stocks of finished goods.
EMPLOYMENT
April data signalled a further increase in workforce numbers across the
U.S. manufacturing sector. Anecdotal evidence suggested the rise was due
to efforts to clear backlogs and greater production requirements. That
said, the rate of job creation was the slowest since June 2017 and
modest. Some respondents noting difficulties finding replacements for
retirees and voluntary leavers.
OUTPUT PRICES
In line with a slower rise in input costs, manufacturing firms
registered a softer increase in factory gate charges in April. Where
higher charges were reported, panellists linked this to the pass-through
of greater cost burdens to clients. That said, the modest rise in output
prices was the slowest since September 2017.
INPUT PRICES
Average cost burdens faced by manufacturing firms increased at a softer
pace in April. Though solid, the rise in input prices was the slowest
since July 2017, with around 81% of firms registering no change in
costs. At the company size level, medium sized firms recorded the
fastest rise in purchase prices.
SUPPLIERS’ DELIVERY TIMES
The seasonally adjusted Suppliers’ Delivery Times Index indicated a
further deterioration in vendor performance across the U.S manufacturing
sector in April. Longer lead times were linked to stock shortages and
greater demand for raw materials. That said, delivery times lengthened
to the smallest extent since June 2017.
QUANTITY OF PURCHASES
Purchasing activity across the manufacturing sector continued to
increase in April, with the rate of growth accelerating from March’s
recent low. The upturn was attributed to a further rise in new orders
and efforts to clear backlogs. That said, the pace of expansion remained
one of the slowest in the last two years.
STOCKS OF PURCHASES
Pre-production inventories rose further in April, thereby extending the
current sequence of growth that began in June 2017. Panellists stated
that stock replenishment was linked to increased backlogs and forecasts
of sustained new order growth.
FUTURE OUTPUT
Output expectations for the coming year remained historically subdued in
April. Manufacturers registered the lowest degree of confidence in the
year-to-date amid greater uncertainty and less robust demand conditions.
Where optimism was reported, panellists linked this to new product
development and hopes of further new business growth.
NOTE
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and PMI™ are either registered trade marks of Markit Economics Limited
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Contacts
IHS Markit
Chris Williamson
Chief Business Economist
T:
++44-20-7260-2329
[email protected]
Siân Jones
Economist
T: +44-1491-461-017
[email protected]
Katherine Smith
Corporate Communications
T: +1 (781) 301-9311
[email protected]
