Meanwhile, companies reported the greatest deterioration in vendor performance since the series began and a faster rate of input cost inflation. That said, business confidence remained strongly positive, and was supported by hopes of further increases in overall new orders. The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index (PMI) registered 55.3 in July, down slightly from 55.4 in June.
Overall, the latest improvement in the health of the sector was the joint-weakest in 2018 to date, but remained strong in the context of historical data. Production continued to rise across the U.S. manufacturing sector in July, extending the current sequence of growth that began in June 2016. Where an increase in output was reported, panelists linked this to greater client demand and larger new order volumes. Although the rate of expansion was strong overall, it was the slowest since November 2017.
New order growth, however, continued to outstrip that of output. The latest upturn in new business matched that seen in June and was strong overall. Anecdotal evidence suggested the rise was due to the acquisition of new clients and favorable demand conditions. That said, growth was largely driven by the domestic market, with foreign demand falling fractionally for the second successive month. In line with a sustained upturn in new orders, backlogs continued to rise solidly in July. On the employment front, panelists commonly reported difficulties filling current vacancies, with the rate of job creation softening despite increased pressure on production capacities.
Pressure on supplier chains also intensified, as highlighted by delivery times lengthening to the greatest extent since the series began. Increased demand for inputs was exacerbated by firms reportedly stockpiling raw materials. Moreover, the rate of input price inflation accelerated to the third fastest since March 2012 and was sharp overall. Firms also commented on efforts to pass costs onto clients through higher prices, with the rate of charge inflation accelerating to the fastest since June 2011. However, some stated that competition between firms weighed on overall pricing power.
Difficulties in sourcing raw materials also fed through to a weaker rise in purchasing activity. That said, signs of stockpiling were evident in a faster increase in pre-production inventories, which rose at the quickest pace since January. Finally, expectations regarding the outlook for output over the next year improved in July. Confidence was largely attributed to new product developments and more favorable demand conditions.
“The US manufacturing sector continued to expand in July, but shows increasing signs of struggling against headwinds of supply shortages, rising prices and deteriorating exports,” said Chris Williamson, chief business economist at HIS Markit.
For more news from the manufacturing sector, find out why Beijing is Moving Away from “Ordinary” Manufacturing.