The purchasing managers' manufacturing index (PMI) from IHS Markit ended August at 54.7, the weakest print of 2018 but still well above pre-election levels and a reading that is consistent with strong overall business activity. Slower rates of production and new orders growth contributed to last month’s headline decline, with some surveyed managers even noting that “client demand was relatively lackluster when compared to the start of the year.” Order backlogs, though, continued to rise in August, which supported additional job creation as manufacturers attempt to boost production capacity. With respect to inflation, upward pressure on input costs came from new trucking regulations, higher raw material prices (in part driven by tariffs), and supply shortages, according to the report.
However, the latest increase in prices was the smallest in half a year, and many managers said that they are still able to pass on higher costs to customers and protect profit margins thanks to strong client demand. Even more encouraging was the Institute for Supply Management's (ISM's) manufacturing index, also released this morning, which ended August at 61.3, the best headline reading since May 2004. Under the hood, measures of new orders, production, and employment improved markedly last month, and comments from surveyed managers were generally positive. Chris Williamson, Markit’s chief business economist, cautiously added that “Exports remain the key source of weakness for producers, with foreign orders barely rising in August after two months of modest declines. The strongest growth is being seen in consumer-facing companies, reflecting robust domestic demand, in turn linked to the strong labor market and buoyant consumer confidence, though even here growth has slowed.”
Sources: Econoday, IHS Markit, ISM, Bloomberg, Twitter, FRBSL
Post author: Charles Couch