New PMI index shows strength in manufacturing sector

The latest numbers from the Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) released on Aug. 23 show that production continues to improve in manufacturing even as new order growth slows and employment expansions hit their slowest pace of the last four months.

The slowdown in order growth is despite the fastest increase in export sales for the close to two years.

Chris Williamson, chief business economist at IHS Markit, said the August drop in PMI to 52.1 from July’s nine-month high of 52.9 was “a disappointment but less worrying when looked at in the context of July’s better than expected reading.”

“Taking the July and August readings together suggests that manufacturing is enjoying its best growth so far this year in the third quarter, and should help drive stronger GDP growth,” Williamson explained. “With August seeing the largest rise in exports for almost two years, the improved trade performance should also help drive faster economic growth.”

However, a slowdown in overall order book growth, Williamson said, “is a warning light that domestic demand has waned in August, and the pull-back in hiring suggests manufacturers have become increasingly cautious about the outlook. Inflationary pressures have meanwhile eased.”

While policymakers will likely be pleased to see signs the economy picked up speed in the third quarter, the Fed “looks unlikely to tighten policy again until the upturn has stronger foundations, suggesting any interest rate rise looks unlikely before December,” Williamson said.