The government shutdown slowed the growth of manufacturing activity, according to the latest Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) data. Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the U.S. released on November 1. The overall composite measure was down from 52.8 in September to 51.1 in October. This was the slowest pace of the year so far, erasing the gains in activity seen since May.
There was a notable decrease in production for the month, with the output index shifting from modest growth (55.3) to a slight contraction (49.5). Sales data were mixed. The growth of overall orders eased for the month (down from 52.7 to 51.6), but exports picked up a bit (up from 49.1 to 50.7). The latter is a positive sign, and yet, the export figure has been highly volatile all year, up a month or so only to fall the next.
Despite the pullback in activity, manufacturing employment edged somewhat higher in October (up from 51.4 to 52.3), with very modest gain in overall hiring. At the same time, pricing pressures also increased (up from 55.8 to 57.3). This was the quickest pace for input prices in three months, but overall inflationary pressures still appear to be mostly reasonable and not too elevated.
Meanwhile, overall manufacturing activity in China and the Eurozone continue to stabilize, rebounding from past weaknesses. The HSBC Flash China Manufacturing PMI, for instance, increased from 50.2 in September to 50.9 in October. This was the highest level seen in March, and more importantly, it was the third straight month of expansion for manufacturers in China. The data were positive for output, new orders, and exports, with each picking up from the previous month.
Employment growth continues to be a challenge despite some progress in October. The hiring index improved from 49.3 to 49.9. The employment measure has been below 50 for seven consecutive months now. Yet, the October reading was almost at the neutral point, and should hopefully turn positive with next month’s survey.
Elsewhere, the HSBC Flash Eurozone Manufacturing PMI was up marginally from 51.1 in September to 51.3 in October. This continues the gains seen across the continent as Europe recovers from its deep two-year recession, albeit with slow growth. Manufacturing PMI values have now been above 50 – the threshold for expansion – for 4 straight months, which has been a huge psychological boost following 23 months of contraction.
The good news was that most of the key measures indicated growth, including data for new orders (up from 52.0 to 52.1) and output (up from 52.1 to 52.9). The pace of new export orders eased, but only slightly (down from 53.2 to 53.0). Employment continues to be negative (down from 49.2 to 48.7), suggesting that there is still much room for improvement on the hiring front.
Chad Moutray is the chief economist, National Association of Manufacturers.
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