Fleet Management

Economic Watch: May Manufacturing Activity Eases, Says Preliminary Report

May 23, 2017

By Evan Lockridge

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A surge seen early this year in the nation’s manufacturing sector continued to lose steam this month, hitting an eight-month low.

The Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) from the financial information services provider IHS Markit showed manufacturing sector business conditions improved at the slowest pace since September 2016.

At 52.5 in May, down slightly from 52.8 in April, the lower PMI reading was driven by softer rates of output, new order and employment growth. A reading above 50 indicates manufacturing is expanding while below 50 shows contraction.

A final reading for May and the more closely watched but similar report from the Institute for Supply Management are both set to be released on June 1.

Production volumes have increased in each month since June 2016, but the rate of expansion eased further from the peak seen at the start of 2017, according to the report.

Some manufacturers suggested that domestic clients had adopted a “wait-and-see approach to investment spending.” Meanwhile, new export sales increased only marginally in May, which pointed to a sustained drag from subdued external demand.

More cautious inventory policies were recorded across the manufacturing sector, with stocks of purchases falling at the most marked pace since September 2016. Meanwhile, manufacturing job creation eased since April and remained only modest.

According to Chris Williamson, chief business economist at HIS Markit, historical comparisons of the PMI against gross domestic product (GDP) indicates that the PMI is running at a level broadly consistent with the economy growing at a 0.4% quarterly rate or 1.5% annually, however once second quarter numbers come in they could be better.

“Actual second quarter GDP numbers are likely to be considerably stronger, in part reflecting seasonality in the official data and the weak first quarter,” he said.

In the first quarter of the year, the U.S. GDP grew at an annual rate 0.7%, down from the 2.1% pace in the fourth quarter of 2016.  Revised second quarter GDP figures are expected to be released on May 26.

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