US manufacturing climbs but not out of the woods

Added 4th July 2016

United States production volumes, new orders and employment reached their highest levels in three months this June, but political and economic uncertainty is still a threat to business, according to Markit.

US manufacturing climbs but not out of the woods

The data firm’s US Manufacturing Purchasing Managers’ Index (PMI) showed a slight improvement from its reading the month before, lifting from 50.7 in May to 51.3 in June.

The financial services data provider said the sector’s modest rebound was thanks to the fastest rise in new work since March, which spurred on production volumes.

Markit’s index also revealed manufacturing employment growth had recovered from the near three-year low recorded in April. However payroll numbers were still unable to hit the heights of the sector’s post-crisis trend.

Despite June’s healthier looking production and employment figures, US manufacturing is not out of the woods yet, according to Chris Williamson, chief economist at Markit.

For one thing, Markit’s data showed that stocks of purchases fell at their fastest pace since January 2014. Input prices also increased for the third consecutive month, pushing inflation upwards, noted Williamson.

“Although the manufacturing PMI ticked higher in June, the latest reading rounds off the worst quarter for goods producers for six years,” he said.  “The lacklustre performance of the manufacturing economy adds to signs from the flash services PMI surveys that the underlying pace of economic growth in the second quarter remained subdued after a disappointing start to the year,” Williamson added.  

Williamson stressed that people also need to appreciate the fact that market conditions are different now than they were at the beginning of 2016. Producers are forced to cope with a stronger dollar post-Brexit and are continuing to feel the effects from the energy sector decline and anxieties around the US presidential election, he said.  

The current precarious political situation in the UK and Europe also threatens the sector’s stability, said Williamson, and could undermine the growth in export sales witnessed in June.

“With companies craving certainty, heightened tensions between the UK and the European Union are likely to unsettle the global business environment further in coming months, and therefore risk dampening growth in the US and export markets,” he said. “The data flow in the next two months will therefore be critical to policymakers in gauging the appropriate outlook for interest rates.”

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