PMI dips to 18-month low in February
- Operating conditions improve at slowest pace since August 2017
- Rates of output and new order growth soften
- Inflationary pressures ease
February data signalled a softer, but still solid, improvement in operating conditions across the U.S. manufacturing sector. The headline PMI slipped to its lowest since August 2017 amid slower expansions in output and new orders. Notably, the increases were slower than their respective long-run trends, with growth rates dipping to 17- and 20-month lows, respectively. Meanwhile, foreign client demand continued to rise marginally. A sustained upturn in new orders led to a further rise in employment, with backlogs also increasing.
At the same time, inflationary pressures softened in February. Rates of both input price and output charge inflation eased from January, with the former edging down to an 18-month low.
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 53.0 in February, down from 54.9 at the start of the year. Midway through the first quarter of 2019, manufacturing firms indicated a solid, albeit softer, improvement in the health of the sector, with the index registering its lowest for 18 months.
Production increased further in February, albeit at a slower pace. Panellists reported that the upturn stemmed from a sustained expansion in new business and efforts to clear backlogs. That said, the rise in output was modest overall, with growth the softest since September 2017 and below the long-run trend.
Similarly, new business received by manufacturers expanded at a slower rate in February. The modest upturn was the weakest since June 2017. Although panellists stated that firmer client demand drove the latest increase, some firms noted that longer lead times were pushing clients to find alternatives. Foreign client demand, however, continued to increase. Though marginal, the rise in new export orders quickened since January.
On the price front, input cost inflation eased to an 18-month low in February. The increase in purchasing prices was nevertheless sharp, reflecting higher raw material costs and tariffs. Factory gate prices rose solidly, albeit at the second-slowest rate since December 2017.
The rate of job creation was faster than the series trend in February, with firms raising their workforce numbers solidly. Pressure on capacity was exhibited by another monthly rise in backlogs of work. Although only fractional, the latest increase extends the current sequence of order book accumulation to 19 months.
A slower rise in new business reportedly led to softer growth in buying activity. Growth in pre-production inventories also eased in February as stocks of inputs were used in production.
Finally, expectations towards the one-year outlook for output remained positive in February. Panellists were buoyed by forecasts of further upturns in new business. That said, the degree of confidence slipped to the second-lowest since November 2016 (behind December 2018).
Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
"The PMI indicates the US manufacturing sector is growing at its weakest rate for one and a half years, with firms reporting a marked easing in production growth in February, linked to a similar slowdown in order book growth.
“The survey exhibits a strong advance correlation with comparable official data, and suggests that factory production and orders growth rates are close to stalling mid-way through the first quarter, albeit in part representing some pay-back after a strong January. Export markets remained the principal drag on order books.
“Having seen demand grow faster than production through much of 2018, order book and output trends have come back into line in recent months, hinting at an alleviation of capacity constraints as demand cools. Backlogs of works barely rose as a result, and price pressures have likewise moderated, though tariffs were again reported to have pushed costs higher. Hiring has consequently also slowed.
“Worries regarding the impact of tariffs and trade wars, alongside wider political uncertainty, undermined business confidence, with expectations of future growth running at one of the most subdued levels seen for over two years and suggesting downside risks prevail for coming months.”
Production continued to expand across the U.S. manufacturing sector in February, albeit at a softer pace. Where a rise in output was reported, panellists linked this to a sustained upturn in new business and efforts to clear backlogs of work. The solid increase was, however, the weakest since September 2017 as some firms noted a lull in client demand.
New orders received by manufacturers rose further in February, thereby extending the current sequence of growth that spans the entire survey history. Anecdotal evidence stated that greater client activity was driving the upturn in new orders. Though strong, the pace of expansion was the slowest since June 2017.
NEW EXPORT ORDERS
New export order growth picked up slightly during February. That said, the upturn was broadly in line with the series trend and marginal overall. A number of surveyed firms suggested that higher export sales stemmed from greater foreign client demand.
BACKLOGS OF WORK
The level of outstanding business continued to rise at U.S. manufacturing firms in February, extending the current sequence of backlog accumulation that began in August 2017. Greater amounts of work-in-hand were linked to a sustained rise in new orders. Nonetheless, the rate of accumulation was only fractional and the slowest in the aforementioned sequence, reportedly reflecting a softer upturn in new business.
STOCKS OF FINISHED GOODS
Post-production inventories were unchanged in February following two consecutive monthly falls in stock levels. Where a rise was reported, panellists suggested this was due to stockpiling activity to ensure the quick shipment of goods. However, others noted that the slowdown in new orders had led to greater usage of current inventories.
U.S. manufacturing firms continued to register a rise in employment in February, with workforce numbers increasing at a solid rate. The pace of job creation was also faster than the series trend, and commonly attributed to greater production requirements and the replacement of staff.
U.S. manufacturing firms registered a further increase in output charges in February. Higher factory gate prices were attributed to the pass-through of greater input costs to clients. The rate of charge inflation was solid and faster than the long-run series average. The was despite easing from that seen at the start of the year to the second-slowest since December 2017.
Input prices paid by manufacturers rose sharply in February, despite the rate of inflation easing to an 18-month low. Greater cost burdens reportedly stemmed from higher raw material prices, with a number of firms continuing to highlight the ongoing impact of tariffs. The pace of increase was, however, slower than the series trend.
SUPPLIERS’ DELIVERY TIMES
The seasonally adjusted Suppliers' Delivery Times Index signalled a further deterioration in vendor performance across the U.S. manufacturing sector in February. Longer lead times were attributed to capacity shortages at suppliers. Deliveries were delayed to a lesser extent compared to 2018 as a whole, but the rate of deterioration remained greater than the series trend.
QUANTITY OF PURCHASES
Purchasing activity across the U.S. goods-producing sector increased in February, albeit at a slightly softer pace. The still solid rise in input buying was linked to restocking and a rise in output. That said, the rate of growth was slower than those seen throughout the majority of 2018 and was the second-weakest expansion since September 2017.
STOCKS OF PURCHASES
As has been the case each month since June 2017, stocks of purchases at manufacturing firms increased in February. The rise in pre-production inventories was linked to efforts to clear backlogs and expectations of further growth in new business. Nonetheless, the increase was only fractional and the slowest in the current 21-month sequence of expansion.
U.S. manufacturers were generally upbeat in February, with around 33% of monitored firms expecting a rise in output over the coming 12 months. Anecdotal evidence suggested positive sentiment was linked to optimism surrounding future new business growth and investment in new product development. That said, the degree of confidence was below the series trend and the second-lowest since November 2016.
The intellectual property rights to the U.S. Manufacturing PMI™ provided herein are owned by or licensed to IHS Markit. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without IHS Markit’s prior consent. IHS Markit shall not have any liability, duty or obligation for or relating to the content or information (“data”) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall IHS Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers' Index™ and PMI™ are either registered trade marks of Markit Economics Limited or licensed to Markit Economics Limited. IHS Markit is a registered trademark of IHS Markit Ltd and/or its affiliates.