New data from Markit provides mixed news for manufacturers and the economy. First, the Markit Flash Manufacturing Purchasing Managers’ Index (PMI) continues to show modest growth for the United States. The “flash” PMI – which is an advance measure of the final PMI data using 85 to 90 percent of the total responses – edged slightly higher from 51.7 in July to 51.9 in August. A small increase was observed in output and new orders, which helped to push the composite figure higher. Pricing pressures also continue to ease.
Still, it is important to keep in mind that manufacturing activity remains sub-par. According to their press release, August’s PMI is the “third-lowest reading in 35 months.” This includes having employment growth at its slowest pace in a year and a half. Not only were many of the components decelerating from earlier in the year, but some of them were shrinking outright. For instance, new export orders remain virtually unchanged at 48.7 in August, with values under 50 suggesting contracting activity.
Falling export orders are the result of slowing global activity. The Markit Flash Eurozone PMI was mostly unchanged, up from 46.5 in July to 46.6 in August. This was the seventh consecutive monthly contraction, with the Flash Eurozone Manufacturing PMI at 45.3. New orders and employment continue to fall, as the continent grapples with the economic consequences of its sovereign debt crisis.
This includes even the strongest economies globally. The Flash German Manufacturing PMI is currently 45.1, up slightly from 43.0 last month. The key point is that manufacturing remains very weak, with similar findings in France (46.2) and China (47.8). The coming weeks will bring new data on other countries, as well. For China, the Flash Manufacturing PMI figure was the lowest in nine months, with falling new orders, exports, and employment. Its press release says, “… Chinese producers are still struggling with strong global headwinds.”
Indeed, these figures provide further evidence that the global economy is slowing, and while the U.S. manufacturing sector continues to have modest gains, there are significant headwinds on the horizon. The Institute for Supply Management, which also produces a PMI report, has found that the U.S. manufacturing sector has contracted for two consecutive months, led by declining new sales. As such, we will be closely looking at the latest ISM figures, which will be released on September 4th, to see how the slowing global economy and uncertainty domestically impact U.S. manufacturing activity.c
Chad Moutray is chief economist, National Association of Manufacturers.