Manufacturing PMI a Bit Weaker Than Expected

The PMI Manufacturing report came in at 52.1 compared to a Bloomberg Econoday consensus estimate of 53.2, in a range of 52.7 to 53.5. New orders and employment showed particular weakness.

Highlights

Weakness in orders and employment were unfortunate themes of last week’s Empire State and Philly Fed reports and likewise headline the manufacturing PMI report. The PMI, which is based on a nationwide sample of manufacturers, slowed by 8 tenths in the August flash to 52.1, a reading only modestly above breakeven 50 to indicate no more than limited expansion in composite activity.

Output is the month’s best strength but one that won’t last very long if orders remain soft. The sample is cutting back on inventories this month which, like the slowing in employment, hints at caution over the business outlook. Price trends are stagnant in yet another sign of softness in demand. One positive in the report is strength in export orders which, after a long run of weak readings, is suddenly near a 2-year high.

Exports aside, the strength in this report is limited and does not point to second-half strength for manufacturing.

Recent History

The manufacturing PMI firmed to 52.9 in the July, a moderate rate near breakeven 50 but still the best showing in 9 months and a reminder of how soft the factory sector has been this year. New orders, including those for exports, were strong in July which points to strength for production in August. Forecasters see the August flash coming in slightly higher at 53.2.

Markit Flash U.S. Manufacturing PMI

The Markit Flash U.S. Manufacturing PMI report was a bit more neutral, perhaps slightly optimistic about all of this.

Key Findings

• Production continues to rise solidly
• Total new order growth slows, despite fastest
• increase in export sales for nearly two years

Comments from Chris Williamson, Markit’s Chief Economist

• The August drop in the PMI is a disappointment but less worrying when looked at in the context of July’s better than expected reading. Taking the July and August readings together suggests that manufacturing is enjoying its best growth so far this year in the third quarter, and should help drive stronger GDP growth.
• With August seeing the largest rise in exports for almost two years, the improved trade performance should also help drive faster economic growth.
• However, a slowdown in overall order book growth is a warning light that domestic demand has waned in August, and the pull-back in hiring suggests manufacturers have become increasingly cautious about the outlook. Inflationary pressures have meanwhile eased.
• Policymakers will therefore be pleased to see signs that the economy may have picked up speed in the third quarter, but the Fed looks unlikely to tighten policy again until the upturn has stronger foundations, suggesting any interest rate rise looks unlikely before December.

Mike “Mish” Shedlock