US Manufacturing Growth Weakest in Nearly 10 Years

The IHS Markit US Manufacturing PMI was revised slightly higher to 50.4 in July 2019 from a preliminary estimate of 50.0 and compared to June's 50.6. Still, the latest reading indicated the slowest overall expansion in the manufacturing sector since the height of the financial crisis in September 2009.
Markit Economics | Joana Ferreira | 8/1/2019 1:49:50 PM
U.S. manufacturing firms signalled only a fractional improvement in business conditions in July, with the headline PMI dropping to its lowest since September 2009. Driving less robust overall growth was a slower increase in production and muted client demand. Although the rate of expansion in new business quickened, it remained historically subdued, with export orders contracting for the second time in the last three months. In line with less robust demand, optimism among manufacturers dipped to a series low. Firms were also more cautious towards hiring, with employment falling for the first time since mid-2013.

Meanwhile, firms raised their factory gate charges at an increased rate despite input cost inflation sliding to the lowest for over two years.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 50.4 in July, broadly in line with 50.6 in June. The latest reading signalled a fractional improvement in the health of the manufacturing sector, but also indicated the slowest overall expansion since the height of the financial crisis in September 2009.

Manufacturers reported only a marginal rise in production during July, with the rate of growth easing to the slowest since June 2016. The sustained slowdown was linked by panellists to softer demand conditions compared to earlier in 2019, notably for goods supplied as inputs to other companies.

The rate of new business growth remained muted overall, despite picking up to a three-month high. Less robust demand from domestic and foreign clients was attributed to issues in the automotive sector, the ongoing impact of tariffs and hestiancy in placing orders. The decrease in new export business was the second in the last three months.

Muted client demand was reportedly a driving force behind subdued business confidence in July. Output expectations slipped further to a series low (since July 2012) as business conditions are predicted to remain challenging over the coming 12 months, especially for smaller firms.

A reduction in the level of positive sentiment towards the year ahead was also reflected in the first fall in employment since June 2013. A number of firms registered stable workforce numbers during July, with difficulties finding replacement staff weighing on overall workforce numbers. At the same time, backlogs of work were reduced at a modest pace.

On the prices front, firms signalled the slowest rate of input cost inflation for just over two years. Nonetheless, firms continued to increase factory gate charges, with output prices rising at a solid rate that was above the series average despite challenging demand conditions.

Finally, purchasing activity fell for the first time since April 2016 as subdued demand drove further stock depletion. Inventories of inputs and finished goods declined in July.

US Manufacturing Growth Weakest in Nearly 10 Years