U.S. manufacturers indicated a strong improvement in overall business conditions during August, driven by faster rises in output, new orders and payroll numbers. The latest survey also signalled a boost to production schedules from greater export sales, with new work from abroad increasing at the steepest pace for three years.
At 57.9 in August, up from 55.8 in July, the final seasonally adjusted Markit U.S. Manufacturing PMI remained well above the neutral 50.0 value. Moreover, the latest headline PMI reading indicated the sharpest improvement in business conditions since April 2010.
August data indicated a further steep increase in production volumes, driven by a sharp and accelerated expansion of incoming new work. The latest rise in new orders was the second-fastest since April 2010. Anecdotal evidence cited improving domestic economic fundamentals as well as stronger export demand.
Backlogs of work increased at manufacturing firms in August, as has now been the case in each of the past seven months. As a result, manufacturers boosted their payroll numbers over the month, with the rate of employment growth accelerating to its sharpest since March 2013.
Stronger inflows of new work and increased production volumes contributed to a sharp and accelerated rise in input buying during August. The latest expansion of purchasing activity was the fastest since the survey began, which placed some pressures on suppliers’ lead-times. Latest data indicated that vendor performance deteriorated for the fourteenth month running and at the most marked rate since the weather-related delays seen in February.
Reports from survey respondents suggested that the improving demand environment resulted in efforts to boost stocks in August. Pre-production inventories and stocks of finished goods both increased at the fastest pace in the survey history.
Strong demand for raw materials and higher transportation costs contributed to a robust increase in average input prices in August. That said, the overall pace of cost inflation slipped to a three-month low. Meanwhile, factory gate price inflation was little-changed from July’s seven-month high.
August data suggested that large manufacturers (500+ employees) experienced the fastest expansion of production volumes, helped by a sharp and accelerated expansion of new export sales.
Small manufacturers (1-99 employees) saw the slowest increases in both output and payroll numbers during the latest survey period.
Robust improvements in operating conditions were recorded in all three market groups monitored by the survey (consumer, intermediate and investment goods). Consumer goods producers posted the fastest expansion of production levels. However, intermediate and investment goods producers registered the steepest increases in employment numbers.
ISM Manufacturing Hits a Three Year High
Today’s release of the ISM Manufacturing report for August showed a nice pick up for the manufacturing sector in the month of August. While economists were expecting a level of 57.0, the actual reading came in at 59.0. This was up from 57.1 in July and was the highest level since March 2011. For some perspective on August’s reading, there have only been 20 months in the last 30 years where the headline reading has been above its current level.
The table below breaks down this month’s ISM Manufacturing report by each of its sub-indices. Here, we saw broad-based strength as seven out of ten components saw month over month increases. This month’s reading of 64.5 for the Production component was the best since May 2010, while the New Orders component rose to 66.7; that was the best reading for that component since April 2004! On the downside, the only three components that saw m/m declines were Supplier Deliveries, Employment (just a slight decline), and Prices Paid. Finally, on a y/y basis this month’s report also saw broad based strength with eight out of ten components showing accelerating rates of growth.