Manufacturing Sector Continues to Improve
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Manufacturing Sector Continues to Improve

manufacturing nf1Operating conditions in the US manufacturing sector continued to improve during May, with strong rises in production and output complemented by further payroll growth.  After accounting for seasonal factors, the Markit Flash US Manufacturing Purchasing Managers’ Index (PMI) improved to 56.2 in May, up from April’s 55.4. Moreover, the latest reading was the strongest recorded by the survey for three months.

The latest survey data indicated continued strength in output growth, with US manufacturers recording their best month-on-month increase in production since February 2011. Output has now risen consistently for over four-and a-half years, and manufacturers attributed the latest production growth to a combination of higher new orders and work on outstanding contracts.

“The US manufacturing sector continued to gain strength heading into mid-year as supportive demand conditions led to the sharpest month-on-month increase in production for over three years,” said Paul Smith, Senior Economist at Markit.  “This provides further confirmation that industry will aid a rebound in US GDP in the second quarter, and other indicators from the survey suggest that the sector has plenty of momentum heading into the summer and beyond. Total workloads are up markedly, and manufacturers are gearing up for growth by purchasing inputs at a record rate.”

New business volumes continued to rise at an elevated pace in May, amid reports of greater confidence in the marketplace. The domestic market appeared to be a key source of new order wins, as growth in new export sales was sustained but at a relatively modest pace.

The strong increase in total new orders led to pressure on capacity as backlogs of work rose in May at the third strongest rate since data was first available in May 2007.

The trends in backlogs, output and new orders encouraged US manufacturers to add to their payrolls in May. Employment rose for the eleventh successive month although the rate of growth eased slightly to the weakest since the start of the year. Not only were workers recruited to help firms get on top of existing requirements, but also in anticipation of further growth.

Confidence in future business activity also led to a sharp increase in purchasing activity. Input buying rose to the greatest degree in over seven years of data availability as manufacturers not only sought to support existing production but also replenish inventory. Stocks of purchases rose at the sharpest rate since April 2012.

Amid strong demand for inputs in May, manufacturers signaled another lengthening of average lead times for the delivery of ordered items to their factories. The degree to which times lengthened accelerated to the fastest since the weather-related disruptions seen earlier in the year.

Finally, on the price front, May’s data indicated an acceleration of input cost inflation to the strongest since January. Manufacturers suggested that the rise in input prices was broad-based, though the majority were unable to pass these higher costs on to their customers. Output charges were little moved in May.

© 2014 PEPD • Private Equity’s Leading News Magazine • 5-22-14

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