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Markit: US manufacturing eases in May

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Markit:  US manufacturing eases in May

Slowest rise in new orders since January 2014; hiring remains strong.

At 53.8 in May, the seasonally adjusted Markit Flash US Manufacturing Purchasing Managers’ Index fell from 54.1 in April and signaled the weakest improvement in overall business conditions since the start of 2014.

Slower new order growth was a key factor weighing down on the headline index in May, while faster job creation was the main positive development since the previous month.

The data indicated that overall new business growth softened for the second consecutive month and was the weakest since January 2014. Moreover, new export sales decreased marginally in May, with a number of manufacturers noting that the strong dollar had a negative influence on competitiveness in external markets. In terms of domestic demand, survey respondents noted that energy sector investment spending remained a key area of weakness in May.

"Unless production growth revives there is a worry that payroll growth will slow as companies seek to boost productivity."

Manufacturing output growth eased further from March’s six-month high, which firms largely attributed to softer new business gains. The latest increase in output volumes was the slowest recorded so far in 2015, but still broadly in line with the post-recession average. Meanwhile, latest data reflected the slowest pace of backlog accumulation across the manufacturing sector for four months. Lower pressure on operating capacity was linked to a combination of weaker new business gains and robust job creation.

Higher levels of manufacturing employment have been recorded in each month since July 2013. The latest upturn in payroll numbers was the fastest for six months, which firms attributed to the launch of new products, long-term investment plans and efforts to boost production volumes.

Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said, “Manufacturers reported their weakest growth since the start of 2014 in May, with the survey results adding to fears that the strong dollar is weighing on the US economy and hitting corporate earnings. Although falling only modestly, export sales have now dipped for two straight months, something not seen for two years and a far cry from the solid export performance seen this time last year. Overall order books are consequently growing at the slowest rate seen since the start of last year.

“The weaker order book trend doesn’t appear to have affected hiring, at least not yet, with job creation picking up in May. However, unless production growth revives there is a worry that payroll growth will slow as companies seek to boost productivity.

“Higher oil prices are meanwhile pushing up firms’ input costs for the first time so far this year, but producers seem to have been able to pass the increase on to customers. However there are few signs of any significant upturn in inflation.

“Despite signs of price pressures picking up, the survey is likely to encourage policymakers to err on the side of caution, especially in relation to any further damaging impact of the stronger dollar on growth and earnings if policy were to be tightened. Any decision on hiking interest rates is therefore likely to be put off until later in the year.”

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