January 4, 2019
data indicated a slower, albeit still solid, improvement in the health
of the U.S. manufacturing sector. The headline PMI dipped to a 15-month
low amid a weaker rise in new business and the joint-softest expansion
in output since September 2017. At the same time, the pace of job
creation eased to an 18-month low, despite a further rise in backlogs.
Notably, business confidence among manufacturers fell again in December,
with the degree of optimism dipping to the lowest since October 2016.
Meanwhile, inflationary pressures eased at the end of 2018.
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing
Managers’ Index™ (PMI™) posted 53.8 in December, down from 55.3 in
November. The latest headline figure suggested a weaker, but still
strong, improvement in operating conditions across the goods producing
sector. Although ending the year with a softer overall expansion, the
final quarterly average of 2018 was strong and quicker than that seen in
Production growth remained solid in December, and at a rate that matched
that seen in November. The rise in output was attributed to greater new
order volumes. That said, the upturn was nonetheless the joint-weakest
in 15 months.
Following a slight pick up in November, new order growth eased in
December. Though strong, the pace of expansion was the weakest since
September 2017. Although some firms stated that the upturn was driven by
new order inflows from newly acquired clients, others cited concerns
surrounding a drop in client demand compared to earlier in the year.
Conversely, new export business grew at an accelerated pace in December.
New orders from abroad increased for the fifth successive month and at
the fastest rate since January amid stronger foreign client demand.
That said, a weaker overall rise in new orders led to a drop in business
confidence among manufacturing firms in December. The degree of optimism
was strong, but well below the long-run series average. Positive
sentiment was dampened by concerns surrounding the longevity of new
business growth. Moreover, future output expectations were at their
lowest since October 2016.
Despite a moderate rise in backlogs in December, the rate of job
creation softened to an 18-month low. Although firms noted an increase
in workforce numbers following greater production requirements, others
suggested that low rates of employee retention had weighed on growth.
Meanwhile, rates of both input price and output charge inflation eased
in December. Greater cost burdens were reportedly due to raw material
stockpiling among manufacturers, shortages of electronics components and
the ongoing impact of tariffs. That said, the rate of inflation dipped
to an 11-month low. Factory gate prices meanwhile rose at the weakest
rate in 2018.
Commenting on the PMI data, Chris Williamson, Chief Business Economist
at IHS Markit, said:
"Manufacturers reported a weakened pace of expansion at the end of 2018,
and grew less upbeat about prospects for 2019. Output and orders books
grew at the slowest rates for over a year and optimism about the outlook
slumped to its gloomiest for over two years. The month rounds of a
fourth quarter in which manufacturing production is indicated to have
risen at only a modest annualised rate of about 1%.
“Some of the weakness is due to capacity constraints, with producers
again reporting widespread difficulties in finding suitable staff and
sourcing sufficient quantities of inputs. However, the survey also
revealed signs of slower demand growth from customers, as well as rising
concerns over the impact of tariffs. Just over two thirds of
manufacturers reporting higher costs attributed the rise in prices to
“Growth was led by strengthening demand for consumer goods, and robust
growth was also reported for investment goods such as plant and
machinery. But producers of intermediate goods – who supply inputs to
other manufactures – reported the weakest rise in new orders for over
two years, hinting at increased destocking by their customers.
“A shift to inventory reduction was highlighted by purchasing activity
in the manufacturing sector rising at the weakest rate for one and a
half years in December, providing further evidence that companies have
become increasingly cautious about spending amid rising uncertainty
about the outlook.”
Production across the U.S. manufacturing sector increased solidly in
December, and at a rate that matched that seen in November. Panellists
widely linked the latest expansion to greater new order volumes. That
said, the upturn was the joint-weakest since September 2017.
New orders received by goods producers rose further in December,
although the rate of expansion softened for the first time in four
months. Notably, the rate of growth was the slowest since September 2017
and dipped below the series trend. Where an increase was reported,
panellists attributed this to greater new order inflows from new client
NEW EXPORT ORDERS
In contrast to the trend for new orders, new business from abroad
increased at a faster pace in December. This also extended the current
sequence of expansion to five months. Anecdotal evidence attributed the
rise to stronger foreign client demand. Although only moderate, the
upturn was the fastest since January.
BACKLOGS OF WORK
The level of work-in-hand at U.S. manufacturers continued to increase in
December, further extending the current sequence of growth that began in
August 2017. A number of monitored firms suggested that greater new
order inflows and a further deterioration in vendor performance
contributed to the latest rise in backlogs.
STOCKS OF FINISHED GOODS
The seasonally adjusted Stocks of Finished Goods Index dipped below the
50.0 no change mark for the third time in the last four months in
December. The marginal decline in post-production inventories was linked
by panellists to delays in the receipt of inputs and the fast shipment
of finished goods.
Workforce numbers continued to grow across the U.S. manufacturing sector
in December. Where an increase in staffing levels was registered, some
firms attributed this to efforts to clear backlogs following a sustained
rise in new business. That said, others noted that the retention of
employees was low, which meant the overall rate of job creation eased to
the weakest in eighteen months.
Average output charges set by goods producers rose at a solid rate in
December. The increase in selling prices was generally attributed to the
pass-through of higher costs to clients. That said, the rate of
inflation softened for the second successive month and was the slowest
Input price inflation softened in December, but remained sharp overall.
Where a rise in purchasing costs was reported, panellists linked this to
increased demand for inputs following expectations of further price
increases, the ongoing impact of tariffs and shortages of electronics
components. Overall, the rate of input price inflation eased to an
eleven-month low, but remained above the survey average.
SUPPLIERS’ DELIVERY TIMES
Suppliers' delivery times continued to lengthen in December. Longer lead
times were widely attributed to supplier capacity constraints and
greater demand for inputs which partly stemmed from stockpiling activity
among some firms in expectation of further tariffs and input price
rises. That said, the extent to which vendor performance deteriorated
was the least marked since January.
QUANTITY OF PURCHASES
activity among goods producers rose again in December, extending the
current trend of expansion that began in May 2016. Increases in input
buying were attributed by panellists to greater new order volumes and
efforts to stockpile inputs. In line with the trend for new business,
however, the rate of growth softened. Furthermore, the upturn was the
weakest in a year-and-a-half.
STOCKS OF PURCHASES
Stocks of purchases held by U.S. manufacturers increased for the
nineteenth successive month in December. The marginal rise in
pre-production inventories was attributed to greater client demand and
increased efforts to stockpile following further delays in supplier
Output expectations for the year ahead deteriorated in December, with
the level of sentiment among the weakest seen in the series history.
While optimism stemmed from a sustained rise in new business, others
expressed concerns surrounding the longevity of increased client demand.
Moreover, the level of business confidence was the lowest since October