Output expands at joint-weakest rate since September 2017
December 03, 2018
Production growth eases but remains strong
- New orders rise at fastest rate for six months
- Employment increases solidly
LONDON--(BUSINESS WIRE)--November survey data signalled a strong improvement in operating
conditions across the U.S. manufacturing sector, despite the headline
PMI dipping to a three-month low. The upturn was supported by the
fastest increase in new orders since May and a sharp rise in employment.
Output also rose solidly, despite growth easing to the joint-weakest in
over a year. Capacity pressures were also evident through a further rise
in backlogs. Panellists continued to highlight stockpiling activity amid
expectations of further rises in raw material prices, with input buying
increasing strongly. Cost burdens rose markedly as shortages at
suppliers and tariffs pushed up input prices.
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing
Managers’ Index™ (PMI™) posted 55.3 in November, down slightly from 55.7
in October. Although the headline figure dipped to a three-month low, it
indicated a robust improvement in the health of the sector that was
above the series trend.
Production continued to increase in November. The rise in output was
solid overall, albeit the joint-slowest in over a year. Nonetheless,
panellists commonly reported on more favourable demand conditions.
Conversely, new orders increased at a sharp and accelerated pace in
November. The rise in new business was the quickest since May and was
often linked to increased client demand and new product launches.
Foreign demand also picked up, with new export orders expanding at the
fastest pace for nine months.
Firms registered a further rise in employment in November, with many
noting that greater production requirements had prompted them to hire
additional workers. The rate of job creation was sharp and the
second-fastest in the year-to-date. Nonetheless, panellists reportedly
struggled to cope with the steep increase in new orders, despite higher
staffing levels, as backlogs of work continued to increase. The level of
work-in-hand grew at one of the fastest rates in over three years.
In response to higher amounts of new and unfinished work, manufacturing
firms registered a strong expansion in buying activity. Input purchases
also rose due to concerns of further tariffs and resulting increases in
raw material costs. Stockpiling activity was linked to a sharp
deterioration in vendor performance, as demand for inputs continued to
Subsequently, cost burdens faced by goods producers rose further.
Although the rate of inflation was slower than those seen earlier in the
year, it remained marked. A combination of tariffs and supplier
shortages were linked to higher input prices. Firms were reportedly able
to partly pass greater cost burdens on to clients through higher output
Business confidence dipped to the weakest since September 2017. Although
optimism stemmed from stronger demand, some raised concerns surrounding
the sustainability of the current sequence of new order growth.
Commenting on the PMI data, Chris Williamson, Chief Business
Economist at IHS Markit, said:
"Despite the headline PMI slipping to a three-month low, November saw
manufacturers enjoy another encouragingly solid month of improving
“Dig deeper behind the headline number and the picture brightens
further. New orders rose at the fastest rate for six months, prompting
manufacturers to continue to expand capacity to meet demand. The pace of
job creation remained among the highest seen over the past decade.
“The survey acts as a reliable guide to the official manufacturing
data, and suggests that factory output is growing at an annualised rate
of around 1.5% so far in the fourth quarter, providing a material but by
no means impressive contribution to GDP. As such, the data corroborate
the flash PMI’s signal that the economy will likely see growth slow to a
2.5% rate in the fourth quarter.
“In a further sign that growth has peaked, business optimism about
the year ahead waned to the lowest for over a year, albeit with the
proportion of companies expecting output to be higher in a year’s time
outnumbering those expecting a decline by 36% to 3%.”
Output at U.S. manufacturers continued to increase solidly in November.
Where a rise was reported, firms attributed this to greater new order
book volumes and stronger client demand. That said, the rate of
expansion dipped below the series trend and was the joint-weakest since
The rate of new order growth picked up in November, with new business
increasing at the fastest pace for six months. The sharp upturn was
commonly linked to greater client demand and new product launches.
Around 16% of respondents noted a rise in new orders, compared to 11%
who reported a fall.
NEW EXPORT ORDERS
New export orders increased for the fourth successive month in November,
with the rate of expansion accelerating from October's fractional
upturn. The rise in new business from abroad was attributed to more
favourable demand conditions. Though modest, the pace of growth was the
fastest for nine months.
BACKLOGS OF WORK
Reflecting a stronger rise in new orders compared to that of output,
backlogs of work increased further in November. The level of outstanding
business rose for the sixteenth consecutive month and at a solid pace
that matched that seen in October. Panellists linked higher amount of
incomplete orders to labour and raw material shortages, alongside the
sustained rise in new business.
STOCKS OF FINISHED GOODS
The seasonally adjusted Stocks of Finished Goods Index signalled an
expansion in inventory levels in November, following a two-month
sequence of decline. A number of surveyed firms mentioned raising their
post-production inventories in response to a further rise in new order
U.S. goods producers registered a strong rise in employment during
November, despite the rate of job creation easing slightly from
October's recent peak. Nonetheless, the rise in staffing levels was the
second-fastest in the year-to-date. Anecdotal evidence generally linked
the increase in workforce numbers to greater production requirements.
Average factory gate prices charged by goods producers increased for the
twenty-sixth consecutive month in November. Although the rate of
inflation softened from October, it was still above the series trend.
Where a rise was reported, panellists linked this to the pass-through of
higher costs to clients.
Cost burdens faced by manufacturers continued to rise in November,
extending the current sequence of inflation that began in April 2016.
Anecdotal evidence suggested higher input prices were due to greater raw
material costs, stemming from greater demand for inputs and tariffs.
Although the rate of inflation softened to a nine-month low, it was
SUPPLIERS’ DELIVERY TIMES
Vendor performance continued to deteriorate across the U.S.
manufacturing sector in November. Although lead times lengthened to the
least marked extent since February, the deterioration remained sharp.
Where panellists noted longer lead times, many linked this to higher
demand for inputs and resulting supplier shortages. Some continued to
report stockpiling activity among manufacturers in anticipation of
further tariff related price rises had also added pressure to supply
QUANTITY OF PURCHASES
Buying activity at U.S. manufacturing firms increased strongly in
November, despite the rate of expansion moderating for the second month
running. Panellists linked the rise in purchasing activity to a further
upturn in new orders and efforts to clear backlogs.
STOCKS OF PURCHASES
The seasonally adjusted Stocks of Purchases Index indicated an
eighteenth successive monthly increase in pre-production inventories in
November. The upturn in stock levels was widely attributed to
anticipations of further new order growth and stockpiling activity due
to expectations of further input price rises. That said, the rate of
accumulation was the weakest since April and only slight.
Business confidence eased in November and was well below the long-run
series average. Optimism was often linked to more favourable demand
conditions and new product development. Others, however, expressed
concerns around how client demand will fare in the months ahead.
Notably, the degree of optimism was the weakest since September 2017.
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