Last updateFri, 19 Oct 2018 1pm


IHS Markit: Manufacturing Loses Momentum in June

June data highlighted a clear loss of momentum for the manufacturing sector, following the strong growth rates seen in recent months. At 54.6, down from 56.4 in May, the seasonally adjusted IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) signaled the slowest improvement in overall business conditions since November 2017. Manufacturing production growth slipped to a nine-month low, reflecting weaker gains in new business volumes in June. The latest upturn in new work was the softest since September 2017, partly reflecting a slight drop in export sales.

Meanwhile, strong demand for raw materials and stretched supply chain capacity continued to push up average input prices in June. Survey respondents widely commented on rising steel costs and increased prices for related items. 

Optimism an All-Time High in NAM Survey

In the latest Manufacturers’ Outlook Survey from the National Association of Manufacturers (NAM), it’s clear that businesses continue to experience highly elevated levels of activity as a result of policies like tax reform, with optimism once again breaking records—95.1% of respondents were either somewhat or very positive about their own company’s outlook, the highest rate since the 20- year-old survey was introduced in the fourth quarter of 1997. In general, those completing this survey have been upbeat since the end of 2016, averaging 92.6% positive over the past six quarters. Additionally, the Manufacturing Outlook Index also rose to an all-time high in this report, the seventh straight quarter where the outlook exceeded the survey’s historical average. 

Texas Economy Continues to Expand at “Solid Pace”

The Texas economy is expanding at a solid pace. Employment has grown at a 3.6% annualized rate through May, driven by job gains in the goods-producing sector. Unemployment remains near its historical low, and labor markets are tight. The Dallas Fed’s Texas Business Outlook Surveys (TBOS) suggest economic activity accelerated in May. Texas’ rig count is on the rise as oil prices continue to recover.

The three-month moving averages of the headline indexes for the manufacturing and service sector surveys continue to trend upward. All TBOS employment indexes increased and were well above their post-recession averages. The Texas Leading Index and TBOS outlook indexes point to continued expansion in the state. 

Consumer Sentiment Climbs to Three-Month High

Consumer sentiment rose slightly in early June due to consumers' more favorable assessments of their current financial situation and more favorable views of current buying conditions for household durables. The Expectations Index declined to its lowest level since the start of the year due to less favorable prospects for the overall economy. The sharpest divide was between the record number of households who mentioned recent income gains and the highest expected year-ahead inflation rate since 2015.

At some point in every economic expansion, the University of Michigan reports, favorable income and job prospects act to offset higher inflation and interest rate expectations. Only when inflation and interest rates are expected to persistently exceed income and job prospects will consumers begin to curtail their discretionary spending. 

U.S. Manufacturing Output Fell in May

Industrial production edged down 0.1% in May after rising 0.9% in April. Excluding motor vehicles and parts, factory output moved down 0.2%. The index for mining rose 1.8%, its fourth consecutive month of growth; the output of utilities moved up 1.1%. At 107.3% of its 2012 average, total industrial production was 3.5% higher in May than it was a year earlier. Capacity utilization for the industrial sector decreased 0.2% in May to 77.9%, a rate that is 1.9% below its long-run average.

Manufacturing output moved down 0.7% in May but was 1.7% higher than its year-earlier level. The indexes for durables and for other manufacturing industries (publishing and logging) each fell more than 1%. 

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