IHS Markit: Manufacturing Sector Healthy Despite Slight Dip in PMI

Written by David Schollaert

The U.S. manufacturing sector saw significant improvement in August, supported by steep upturns in production and new orders, according to the latest U.S. Manufacturing PMI data from IHS Markit.

“U.S. goods producers continued to register marked upturns in output and new orders in August, as demand flourished once again. That said, constraints on production due to material shortages exerted further pressure on capacity as backlogs of work rose at a near-record rate,” said Siân Jones, senior economist at IHS Markit. “Not only were firms facing difficulties trying to clear outstanding work, but they also faced further hikes in supplier costs. The pace of cost inflation exceeded the previous series record amid a pervasive scarcity of inputs. Favorable demand conditions allowed finished goods prices to also rise at an unprecedented rate, as firms sought to protect their margins.”

Although output expectations strengthened, employment growth eased as firms struggled to retain staff and find suitable candidates for current vacancies. The seasonally adjusted IHS Markit PMI posted a reading of 61.1 in August, down from 63.4 in July, but broadly in line with the earlier released “flash” estimate of 61.2 (a reading above 50.0 indicates growth). The latest improvement in operating conditions was the softest for four months, but nonetheless among the strongest seen in the 14-year series history.

Overall growth was dictated by a sharp expansion in production during August, albeit the slowest for five months. Where an increase was reported, it was generally linked to a further upturn in new orders and firm demand conditions. The softer expansion of output was due to capacity constraints including material shortages, said Jones. “Delivery times lengthened at the second-sharpest rate in over 14 years of data collection, with purchasing activity still rising markedly. It was not only producers who highlighted stockpiling, however, as reports of customers shoring up their holdings of finished items resulted in a substantial drop in post-production inventories.”

Material shortages hampered output growth in August, as supplier delivery times increased to one of the greatest extents on record. Longer lead times were attributed to greater global demand for inputs and capacity issues at suppliers. Cost burdens rose substantially in August as a result, added Jones. “The rate of input price inflation was the fastest seen in more than 14 years of data collection amid supplier price hikes. To partially pass on greater costs to their clients, goods producers raised their selling prices at the steepest pace on record.”

David Schollaert

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