IHS Markit US Manufacturing PMI™

New order growth accelerates to five-month high

Key findings:

  • Upturn in new business quickens to sharp rate
  • Export orders increase fractionally
  • Rate of job creation picks up to ten-month high

LONDON–(BUSINESS WIRE)–U.S. manufacturing firms signalled a strong start to the final quarter
of 2018, with operating conditions improving at a faster pace in
October. Driving the latest development in the health of the sector was
a sharp increase in new business. The upturn in total new work reached a
five-month high, though only a fractional rise in new export orders was
registered. Greater production requirements and efforts to clear
backlogs meanwhile led to a quicker monthly rise in hiring, the fastest
for ten months. Price pressures remained intense, however, with rates of
input price and output charge inflation accelerating. At the same time,
business confidence picked up from September’s 12-month low.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing
Managers’ Index™ (PMI™) posted 55.7 in October, broadly in line with
September’s reading of 55.6. The latest figure signalled a further pick
up in growth momentum and a strong improvement in the health of the
manufacturing sector. Moreover, October’s reading reached a five-month
high.

The headline PMI was driven by a stronger expansion in new business
received by goods producers in October. The upturn in new orders
accelerated to a five-month high and was widely attributed to greater
client demand across the domestic market. Conversely, new export orders
grew only fractionally and at the weakest pace in the current
three-month sequence of growth.

Production levels expanded strongly in October and at a rate that was
broadly in line with the series trend. Panellists commonly attributed
the rise in output to greater client demand and increased efforts to
clear backlogs.

In line with another rise in backlogs and a sustained increase in new
business, employment growth accelerated in October. The rate of job
creation reached a ten-month high and was strong overall. Respondents
also noted that anticipations of greater new orders during the fourth
quarter had led to the upturn.

Manufacturing firms recorded pressures on profit margins in October,
with the rate of input price inflation quickening to a marked pace. The
rate of increase reached a three-month high and was largely linked to
higher raw material and metal prices stemming from the ongoing effects
of tariffs.

Consequently, manufacturers tried to partly pass on higher cost burdens
to their clients through increased output charges. Although the rate of
output price inflation accelerated to the fastest since July, it
remained well below that seen for input costs.

Meanwhile, firms registered a strong rise in buying activity amid
reports of greater efforts to stockpile. Pre-production inventories
increased for the seventeenth month running, albeit modestly, as longer
input deliveries curbed stock building efforts.

Finally, output expectations towards the coming 12 months improved, with
firms suggesting that anticipations of further new order growth drove
optimism.

Commenting on the PMI data, Chris Williamson, Chief Business
Economist at IHS Markit said:

“The manufacturing sector saw a strong start to the closing quarter
of 2018, with new order inflows rising sharply and business optimism
spiking higher in an encouraging sign that firms expect the good times
to continue into 2019.

“The increasingly bullish mood was also reflected in one of the
largest monthly increases in factory payroll numbers seen over the past
seven years as firms grew capacity to meet rising workloads.

“The key area of concern remained tariffs, which were widely reported
to have contributed to another month of stalled export sales and a steep
rise in prices for many inputs. Average input prices rose at one of the
sharpest rates seen over the past six years in October. In a clear sign
that inflationary pressures are continuing to build, strong customer
demand meant firms were often able to push cost increases through to
selling prices. Average prices charged for goods leaving the factory
gate consequently jumped to one of the greatest extents seen since
mid-2011.”

Methodology

The IHS Markit US Manufacturing PMI™ is compiled by IHS Markit from
responses to questionnaires sent to purchasing managers in a panel of
around 800 manufacturers. The panel is stratified by detailed sector and
company workforce size, based on contributions to GDP.

Survey responses are collected in the second half of each month and
indicate the direction of change compared to the previous month. A
diffusion index is calculated for each survey variable. The index is the
sum of the percentage of ‘higher’ responses and half the percentage of
‘unchanged’ responses. The indices vary between 0 and 100, with a
reading above 50 indicating an overall increase compared to the previous
month, and below 50 an overall decrease. The indices are then seasonally
adjusted.

The headline figure is the Purchasing Managers’ Index™ (PMI). The PMI is
a weighted average of the following five indices: New Orders (30%),
Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and
Stocks of Purchases (10%). For the PMI calculation the Suppliers’
Delivery Times Index is inverted so that it moves in a comparable
direction to the other indices.

Underlying survey data are not revised after publication, but seasonal
adjustment factors may be revised from time to time as appropriate which
will affect the seasonally adjusted data series.

For further information on the PMI survey methodology, please contact economics@ihsmarkit.com.

About IHS Markit

IHS Markit (Nasdaq: INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 business and government customers, including 80 percent
of the Fortune Global 500 and the world’s leading financial
institutions.IHS Markit is a registered trademark of IHS Markit Ltd.
and/or its affiliates. All other company and product names may be
trademarks of their respective owners © 2018 IHS Markit Ltd. All rights
reserved.

About PMI

Purchasing Managers’ Index™ (PMI™) surveys are now available for over 40
countries and also for key regions including the eurozone. They are the
most closely watched business surveys in the world, favoured by central
banks, financial markets and business decision makers for their ability
to provide up-to-date, accurate and often unique monthly indicators of
economic trends. To learn more go to ihsmarkit.com/products/pmi.html.

Disclaimer

The intellectual property rights to the data 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.

Contacts

IHS Markit
Chris Williamson, +44-20-7260-2329
Chief
Business Economist
chris.williamson@ihsmarkit.com
or
Siân
Jones, +44-1491-461-017
Economist
sian.jones@ihsmarkit.com
or
Joanna
Vickers, +44-207-260-2234
Corporate Communications
joanna.vickers@ihsmarkit.com

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