U.S. manufacturing sector’s business conditions rebound in May

The latest PMI survey data hinted that U.S. manufacturing sector’s business conditions rebounded markedly in May. The seasonally adjusted IHS Markit final U.S. manufacturing PMI index dropped slightly to 56.4 in May from 56.5 in April. The reading was the second strongest rebound in the health of the sector since September 2014. The upturn was mainly driven by sharp rises in production and new business. The greatest lengthening in supplier delivery times since the series started in October 2009 also added to the headline figure.

Factory output continued to rise at a strong rate in May, in spite of the pace of growth weakening slightly. More favourable demand conditions and greater client demand were widely cited as driving the growth in production.

Reflective of stronger demand conditions, new orders rose sharply in May. Furthermore, the pace of growth was the second-fastest since September 2014. Along with the acquisition of new clients, panellists also noted that customers were demonstrating a greater propensity to spend. On the contrary, new export orders rose just marginally.

As the pace of new business growth continued to outstrip that of output, backlogs rose again in May, increasing at the fastest rate in over two-and-a-half years. Therefore, companies added to their payrolls again, with the pace of job creation picking up slightly during the month though failing to match the highs seen earlier in the year.

In the meantime, price pressures continued to be elevated. Although rates of both input cost and selling price inflation eased slightly, they were nonetheless the second-fastest since September and June 2011 respectively. Panellists reported that higher input costs were often due to suppliers being able to hike prices in response to solid demand.

Increased pressure on supply chains led to the greatest deterioration in vendor performance in the series’ history. Consequently, stocks of purchases rose at the most rapid pace in four months as firms rose their attempts to create safety stocks. Business sentiment continued to be strong in May, climbing to the second-highest since February 2015.

At 15:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -59.2247. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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