Business conditions in US manufacturing sector likely to have improved strongly in July

Business conditions throughout the US manufacturing sector are expected to have rebounded further, according to the flash PMI for July. The seasonally adjusted Markit Flash US Manufacturing Purchasing Mangers’ Index rose to 52.9 from June’s 51.3.

This signals a strong rebound in overall business conditions. Furthermore, the index continued to improve from the post-crisis low witnessed in May. More rapid growth in output, employment and new orders mainly influenced the July data positively, whereas the sustained inventory cutbacks weighed on the PMI.

For the last two months, elevated levels of manufacturing production have been registered. The latest growth is the most rapid since November 2015. Survey respondents mentioned solid growth in sales, new products’ launch and generally favorable domestic economic conditions, noted Markit.

Certain companies stated that the subdued demand from energy sector and uncertainty regarding the presidential election continued to pose challenge for growth.

A strong increase in new business volumes drove a rise in production growth in July. The recent growth was the most rapid in nine months and near the post-crisis average. In the mean-time, new export orders increased at a slower rate than seen for the overall new business. This implied that domestic markets continued to be the key growth driver in July.

But the latest growth in new export orders, although only modest, still compared favourably with the stagnation witnessed on average in the past year-and-a-half, said Markit.

Enhanced demand conditions and larger production volumes urged for additional job creations throughout the manufacturing sector in July. The recent survey emphasized a strong rise in the number of employment, with the growth rate fastest for one year.

Producers have also stimulated their input purchases as a reaction to greater workloads. Increased levels of purchasing activity have been registered for three consecutive months; however, the recent survey showed that input stocks were running low again.

In the mean time, the survey hinted at a strong input cost inflation pace throughout the manufacturing sector. The pace is the most solid since November 2014. Increased steel prices and a rise in staff salaries are likely to have added to the upward pressure on average cost burdens. The July data, in spite of a rapid rise in input costs, has hinted that output charge inflation continued to be marginal and has alleviated since June.