ECONOMICS COMMENTARY — Sep 03, 2024
US manufacturing PMI sends warning signals on economic conditions
A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward-looking indicators - notably the survey's orders-to-inventory ratio - suggest this drag could intensify in the coming months.
PMI hits eight-month low
The seasonally adjusted S&P Global US Manufacturing Purchasing Managers' Index™ (PMI®) posted 47.9 in August, down from 49.6 in July. The latest reading was the lowest since last December and signalled a second consecutive month of deteriorating manufacturing sector conditions.
Falling orders, rising inventories
The sub-indices of the PMI, and accompanying anecdotal evidence collected from the survey's panel of 800 manufacturers across the US, showed that slower than expected sales are causing warehouses to fill with unsold stock. In recent months, the survey's Stocks of Finished Goods index has shown some of the largest inventory gains seen since data were first collected in 2007.
Furthermore, a dearth of new orders has prompted factories to cut production for the first time since January. New orders inflows fell in August at the sharpest rate for 14 months, with export orders declining at the steepest rate for a year.
The combination of falling orders and rising inventory sends the gloomiest forward-indication of production trends seen for one-and-a-half years, and one of the most worrying signals witnessed since the global financial crisis.
Price hikes add to inflation uncertainty
Producers are also reducing payroll numbers for the first time this year as well as buying fewer inputs amid concerns about excess capacity.
Although this fall in demand for raw materials has taken pressure off supply chains, rising wages and high shipping rates continue to be widely reported as factors pushing up input costs, which are rising at the fastest pace since April of last year.
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Chris Williamson, Chief Business Economist, S&P Global Market Intelligence
Tel: +44 207 260 2329
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Purchasing Managers' Index™ (PMI®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.