Business conditions across U.S. manufacturing sector strengthen in June

Business conditions throughout the U.S. manufacturing sector have been strengthening in June, according to the flash manufacturing PMI. The seasonally adjusted Markit Flash U.S. manufacturing PMI rose to 51.4 in June from May’s 50.7. It has signalled the most rapid recovery in operating conditions for three months.

Weak readings in April and May signify that the average for the second quarter of 2016 was the lowest since Q3 2009. But the recent reading indicated towards a rebound in the momentum of the growth after the six-and-a-half year low recorded in May. The headline index received a boost from the higher output levels along with a more rapid growth of employment and new orders.

Manufactures showed a moderate increase in the volumes of production in June. According to survey respondents, this was mainly connected to a recovery in customer demand and an upturn in new work. The recent rise in new business was the most robust since March, but was weak when compared to the post-crisis average. New orders from outside of the country grew at the most rapid rate for nearly two years, implying a further stimulus to growth from huge export sales in June.

In spite of robust growth in new business, several manufactures noted that increased economic uncertainty had resulted in postponement in decision making and larger risk aversion amongst clients in June. Furthermore, worries regarding the business prospects added to the tighter inventory management throughout the manufacturing sector. Stocks of purchases dropped at the fastest rate since January 2014, whereas postproduction inventories decline at the second most rapid rate recorded in 2016.

While manufacturers showed sustained caution regarding their stock policies, it was in contrast with the positive trends for recruitment of staff in June. Growth in employment improved further from close to three-year low record in April, partially reflecting a renewed rise in backlogs of work throughout the manufacturing sector.

Volumes of work outstanding increased for the first times since the beginning of 2016, hence implying a major capacity pressures amongst manufacturers in June. In the mean time, input price inflation rose again in June. The recent increase in average cost burdens was the fastest since November 2014.