A first-look at how the manufacturing economy is performing this month shows conditions have improved to a two-month high, while a separate report indicates the overall economy improved again in August as the outlook calls for continued growth through the second half of the year.
Manufacturing business conditions continued to improve at a relatively subdued pace in September, according to the preliminary Flash U.S. Manufacturing Purchasing Managers’ Index from the financial information services provider IHS Markit.
At 53.0, up fractionally from 52.8 in August, the gauge remained weaker than its post-financial crisis trend of 53.9. September data indicated that output volumes increased at a moderate pace that was unchanged from August’s 14-month low.
Some manufacturers noted that Hurricane Harvey had led to temporary disruptions to production at their plants. However, there were also signs of underlying fragility in September, with new orders expanding at one of the slowest rates seen over the past year. The latest data also indicated that new export sales remain close to stagnation.
Backlogs of work increased for the second month running in September, which encouraged some firms to boost their payroll numbers. The rate of employment growth was the fastest so far in 2017.
Historical comparisons of the PMI with the U.S. gross domestic product point to the economy growing at an annualized rate of just over 2% in the third quarter, according to Chris Williamson, chief business economist at IHS Markit. That compares to a 3% annual rate in the second quarter of the year.
“The biggest impact of Hurricane Harvey was evident in manufacturing supply chains, where resultant supply shortages were a key driver of higher prices,” he said. “The manufacturing sector, which was already struggling in August, consequently acted as an increasing drag on the economy, leaving services as the main growth driver. The survey is consistent with a slight deterioration in comparable official manufacturing output data."
A final report on September isn’t due out until the first of October, when the more closely watched gauge of the manufacturing sector is also set to come out from the Institute for Supply Management. Its recent readings have been more positive about the manufacturing economy than the IHS Market report, including its August report that showed manufacturing was at its highest level since 2011.
Leading Indicators up for a Solid Year
A measure that looks at where the economy is headed the next several months showed its 12th consecutive monthly gain.
The Conference Board's Leading Economic Index (LEI) for the U.S. increased 0.4% in August to 128.8, following a 0.3% increase in July and a 0.6% increase in June. Seven of the 10 components that make up the index contributed positively to it. Initial unemployment claims was the only component to negatively impact the headline reading.
“The August gain is consistent with continuing growth in the U.S. economy for the second half of the year, which may even see a moderate pick up,” said Ataman Ozyildirim, director of business cycles and growth research at the private research group. “While the economic impact of recent hurricanes is not fully reflected in the leading indicators yet, the underlying trends suggest that the current solid pace of growth should continue in the near term.”
The Conference Board’s Coincident Economic Index for the U.S, which measures current economic conditions, was unchanged in August, remaining at 115.8 following a 0.3% increase in July, and a 0.1% increase in June.
The Lagging Economic Index for the U.S., which measures past conditions, increased 0.3% in August to 125.2, following a 0.2% increase in July and a 0.2% increase in June.