US Manufacturing Expansion Remains Weak in August

August 28, 2012 /

The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) continued to signal only a modest improvement in U.S. manufacturing business conditions in August.

The preliminary ‘flash’ PMI reading which is based on around 85% of usual monthly replies rose slightly from 51.4 in July to 51.9 and was the third-lowest since the manufacturing recovery was first indicated by the headline index in October 2009.

PMI index readings above 50.0 signal an increase or improvement on the prior month, while readings below 50.0 indicate a decrease. Manufacturing production rose further in August, taking the current sequence of growth to 35 months.

Although having strengthened since July, the latest expansion was only modest and the second-weakest in over a year.

The volume of new orders received by manufacturers also grew over the month, with a number of surveyed firms attributing this to increased marketing and the release of new contracts. However, the overall rise in new work intakes masked a further reduction in new export orders. New work from export markets fell for the third consecutive month, with the rate of contraction broadly unchanged from July.

Reflective of the increase in new orders, backlogs of work rose for the first time in three months during August. Stocks of finished goods meanwhile were depleted, in contrast to the accumulation reported one month previously.

Employment in the manufacturing sector rose further in August, but the rate of job creation slowed for the fifth month running to the weakest since December 2010.

Both average input costs and output prices fell for the third consecutive month in August, albeit marginally. Panellists particularly mentioned paying lower prices for petroleum, electronic parts and metals such as steel, as they were generally in a better position to negotiate with suppliers due to improved
goods availability.

Concurrently, suppliers’ delivery times lengthened only slightly over the month, with the latest deterioration in vendor performance the weakest in over three years.

Manufacturers bought a larger quantity of purchases and depleted their input inventories in August, generally citing larger output requirements. Nonetheless, the latest rise in buying activity was the weakest in 19 months.

Rob Dobson, Senior Economist at Markit said: “The U.S. manufacturing sector continued to grow only modestly in August, with the overall expansion for the third quarter set to be at a recovery-low.

“Although latest survey data pointed to a slightly better performance than that registered in July, it nonetheless suggested that manufacturing continued to take a hit from weak economic conditions in key export markets. Higher domestic new orders, in part due to increased marketing and lower selling prices, was partly offset by a further reduction in new export work.

“On a more positive note, the weakness in the manufacturing sector has alleviated some supplyside pressures and contributed to a third successive monthly fall in input prices.”


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