The Markit US Flash Manufacturing Report shows U.S. manufacturers record strongest upturn in business conditions for 12 months.
The report also shows input cost inflation is the strongest in nearly two years, hiring is subdued, and export growth is weak.
Key Findings
- Headline PMI rises from 51.5 to 53.2 in October
- Output and new order growth hit one-year peaks
- Manufacturers report fastest expansion of input buying since June 2015
- Input cost inflation accelerates to its strongest for almost two years
Manufacturing production has now increased for five months running, following a slight dip in May. The rate of expansion in October was the fastest for exactly one year. Survey respondents cited an accelerated pace of new business growth and, in some cases, efforts to boost production in anticipation of stronger client demand in the months ahead.
In line with the trend for output volumes, latest data highlighted that incoming new orders picked up at the fastest pace for 12 months. Anecdotal evidence suggested that new product launches and stronger domestic demand had resulted in greater sales volumes. Nonetheless, some firms continued to report delayed decision making among clients, linked to uncertainty ahead of the presidential election.
Meanwhile, new export orders increased only slightly in October, but this was an improvement on the fractional decline seen during the previous survey period. Manufacturers mainly cited strong competition and relatively subdued demand patterns across key global markets.
Higher levels of incoming new work resulted in a greater degree of backlog accumulation across the manufacturing sector during October. The latest rise in unfinished work was the largest for 12 months. Some firms commented on increased capacity pressures at their plants, in part reflecting subdued job hiring in recent months.
Latest data signalled only a moderate rise in payroll numbers, and the rate of expansion was weaker than in September. The latest survey indicated a robust upturn in input buying among manufacturing firms, which was linked to projections of rising demand and associated efforts to boost inventories. Moreover, the increase in purchasing activity was the fastest since June 2015. This contributed to a rise in preproduction stocks for the first time in 11 months. At the same time, finished goods inventories stabilized in October, which ended a four-month period of decline.
Comments From Chris Williamson, Markit’s Chief Business Economist
- “Manufacturing showed further signs of pulling out of the malaise seen earlier in the year, starting the fourth quarter on a solid footing. Both output and new orders are rising at the fastest rates for a year amid increasingly widespread optimism that demand will pick up again after the presidential election, which has been commonly cited as a key factor that has subdued spending and investment in recent months.”
- “There are also signs that the drag from cost-cutting policies of deliberate inventory reduction is moving into reverse. Inventory-building should therefore provide an extra boost to the economy in the fourth quarter.”
- “Weak export growth, attributable to the strong dollar, and lacklustre hiring remain big areas of disappointment, and highlight an ongoing dependency on domestic demand and a need to keep labour costs low amid a still-uncertain economic and political outlook.”
Mish Comments
- Are companies ramping up inventories for demand that will not appear? Are they ramping up at all?
- I am skeptical of this report, especially with recent weakness in the auto sector.
- One of the problems with diffusion indices is small companies and large companies are treated equally. GM and Ford have no more weight than companies that employ 300 workers.
- The report noted rising input prices but failed to comment on selling prices. We do not know if they are going up or down.
- It would be nice to see all the components that make up the headline PMI number and their impact on the overall number. That is something ISM provides.
- The rising US dollar rates to dampen exports.
- Markit’s flash services report is out on the 26th of October. We may see Williamson’s initial GDP estimate for the 4th quarter GDP at that time.
- Williamson’s final GDP estimate for the 3rd quarter is 1.0%
For discussion of Markit’s 3rd quarter GDP estimate and a look at how ISM breaks down the factors that go into its reading, please see Markit vs. ISM Services: Markit Economist Sticks with 1% Third Quarter GDP Estimate.
Mike “Mish” Shedlock
“Survey respondents cited an accelerated pace of new business growth and, in some cases, efforts to boost production in anticipation of stronger client demand in the months ahead.”
Anticipation?
Sure. Go right ahead.
Looking forward to Inventories / Sales to getting even further recessionary.
Yep. Look at the rest of the graph. Noise.
1 week ago –
…
In a fresh sign of pressure on U.S. automakers, Ford Motor Co. on Monday said it will shut down production of its best-selling F-150 pickup truck for a week at a Kansas City assembly plant, and temporarily idle three other plants over the next several weeks.
…
“During our second quarter financial call, we said we expected the overall retail industry to decline in the second half of the year from the same period last year. We also said to expect to see some production adjustments in the second half – this is one of them. We continue matching production to meet demand,” said Kelli Felker, Ford spokeswoman.
http://fortune.com/2016/10/17/ford-f-150-factory/
Golly gee whiz, a sudden pop in the economic stats, just 2 weeks before the election!
What a surprise! Shocking! Funny how that seems to happen every 2 years, and particularly every 4 years.
Blue skies ahead. Let’s fly with Hillary.
Broom production skyrockets.
Why would someone choose to hold off buying something because of an election? I’ve never made a single decision based upon who the president is or who runs Congress. Does the government really have that much influence in people’s lives?
Well Jon, as a small business guy for many years, you can BET that my purchasing decisions are being driven by this election. A Hillary win starts my shutdown.
In support of your notion however, I DO believe that most consumers couldn’t care less. A coming apocalypse would only provide additional motivation to buy now, as most do not care at all if their borrowing defaults. Most are simply driven by what’s in their pockets and how much credit they can qualify for.
Back in 08/09 I was perusing some local car lots, looking for a bargain. Talked to a lot of salesmen. Universally they told me that they had plenty of shoppers, but few could qualify for a loan. The potential buyers were not concerned about the future of the economy or if their payments would be manageable if the economy worsened. They just couldn’t get the loan. Cash buyers like myself, on the other hand, were very concerned about affordability and somewhat hesitant to buy.
It is apparent to me that the ONLY economy we have left is that which can be financed. Actual consumer wealth is almost nonexistent, and those that have it are very timid about spending it. The economy has only recovered in those areas where credit dominates….cars, houses, cell phones and credit card consumables. Caterpillar….not so much. Corporations are intelligent enough to not borrow for things that offer no return…so they buy their own stocks…which provides ample returns…for them.
Government dominates EVERYTHING, especially now that any resemblance to a real economy has been done away with. Business sets with baited breath, waiting, for the next empirical decree.
0.5% (3m/3m) manufacturing output change.
Manufacturing employment growth negative.
Wow, get out the party hats – I’m Ready for Kakistocracy!
Output prices: 52.8 vs. 49.5
The Purchasing Managers’ Index™ (PMI™) is a composite index based on five of the individual indexes with the following weights: New
Orders – 0.3, Output – 0.25, Employment – 0.2, Suppliers’ Delivery Times – 0.15, Stocks of Items Purchased – 0.1, with the Delivery Times
Index inverted so that it moves in a comparable direction.
Every other day or so it is a post about declining housing starts or poor clothing sales or an uptick in this or that. I have been a retail merchant for 24 years with a retail and online and all I can say is I don’t believe any of it all. Things… activities… and the velocity of money is slowing down again. And it has been slowing since about april march
It could be the election and the great uncertainty we all have about our “leaders”. But all the economic news is hype. People are spending less and they are doing less and are on their phone devices more and more. fact.
A one month trend.
I don’t trust any number that’s seasonally adjusted. Just show the real number and compare it to prior years. It seems the season has an increasing effect on the revised numbers every year.
All numbers must be “adjusted” in order for a lay person to be able to understand their true meaning. Unadjusted numbers could provide a false reality based upon real results. That’s just not good for the economy, as we would likely choose poorly if we thought there might be something actually wrong. Regardless….just accept that our ignorance is in our own interests.It should be apparent to even the most ignorant of citizens that the geniuses that have driven our economic systems for years, reaching such splendor as they have, are beyond question, much less doubt. Simply look at how many years we have been able to “prosper” while spending hundreds of billions more on imports than the goods we export. If that ain’t genius, I don’t know what is, RIGHT? Keep the faith. It’s no time to give up on the delusion NOW.
Manufacturing plants in deetoit ramped up for model change in July and by September, were already laying off employees. Faucea just announced a plant closing due to FCA curtailing Dodge Dart/Chrysler production. Ram Truck production moving into SHAP to take its place. Lots are filling with inventory while workers are losing overtime hours. Yep, autos have git a saturarion poi t and that was showing up a year ago, so there’s no backing to the optimism.
AS long as inventories continue to build, then so will the asset column on their balance sheet. All good until bills need to be paid.
With all the fixed cost in that industry, it will show up pretty quickly especially considering that tooling costs are generally due in the 3rd quarter.
Belgium is a mistake by 7 men sitting around a table in London in 1830 long before TE Lawrence, Gertrude Bell & Si John Glub Pasha drew all those straight lines in the ME. At the end of WWII, Belgians voted to reinstate Leopold III, which Walloons 1/3rd of the pop did not want – end of Leo III. Anytime these farmers don’t like something they drive their tractors into Bxl similar to the Eurocrats 100% going on strike when they are unhappy. I live in Wallonie & have spent $60,000 for neighbour’s illicit pollution permitted by the mayor who deemed it unacceptable when he visited but permits it as he is the biggest landowner & depends upon the tractor drivers to blow his fields.
This is the story of “La Petite Delphine”, a professional artist & illegitimate daughter of Albert who has never recognized her while his wife has recognized Laurent, her illegitimate son by Lalo Vastopane – éa new record for Saxe-Cobourg debauchery causing Baudoin, the old king to give federal powers to the regions & the communes at the bidding of his Spanish wife.
A capitalist, the envy of Merk & others, just like the mayor, that little pixie, Elio, being Socialist Nr 1, nevertheless forced my village to grant me Belgian nationality directly after 9/11 even though this hamlet is not under his jurisdiction even with a Napoleonic document I could not retrieve from my city of birth, NYC…
Good luck with your French lawyer & don’t miss “Versailles”, a Canadian film describing the Sun King: secrecy, debauchery & cruelty. Vive la France whose capital was liberated by the famous Division Le Clerc profiled by the US 28th Inf Div in battle formation;, my Uncle Stuart nearly killed at the Bulge, myself with a life expectancy of 5 min at the Berlin Wall;
Bill
Finding more excitement right here, I gave up my Iraq Journal… >
Magnifying input prices mean that bankers are getting rich by printing. That’s about it. Printing is removing accurate supply/demand information from price, thus slowly producing a banana republic economy.
I’ve used band-pass filters on US financial markets, and have seen 3.3 and 7.3 year cycles dominate. The 7.3 year cycle is a year past its peak and should be entering the steepest part of the down phase. The 3.3 year cycle is a little past its low. Combining the two should result in flat to down trend over the next year.
That said, the PMI chart shows the same lows for these cycles as for US markets, so I would conclude the PMI will roll over through next year. This latest report is from weaker, shorter cycles.
Now if I was concerned of both a rate hike and post election budget freeze (mandated or just typical bureaucratic shuffle) I’d likely make sure deals got done before election.
A few months from now expect to see a slew of news stories about how spending by the Federal Government boosted the economy and the GDP in the third quarter. Economy pumping is not an uncommon practice before an election but it is important we factor in its influence when attempting to determine the true strength of the economy. Details in the article below caution it is important we not let this prop mislead us.
http://brucewilds.blogspot.com/2016/10/government-spending-is-boosting-growth.html