US Markit Manufacturing PMI May F: 62.1 (est 61.5; prev 61.5) - record highs abound - details
US Markit Manufacturing PMI May F: 62.1 (est 61.5; prev 61.5)
Pieced from the report (bold is mine):
May data from IHS Markit indicated a substantial improvement in the health of the U.S. manufacturing sector, with the rate of overall growth accelerating to a fresh record high. The upturn was supported by stronger expansions in output and new orders, with the pace of the latter reaching the fastest on record. Nonetheless, constraints on production capacity were exacerbated further during the month, as severe supply-chain disruptions led to a marked accumulation of backlogs of work and one of the fastest rises in input prices since data collection began in May 2007. Although firms were able to partially pass on higher cost burdens, supply shortages and the potential for future strain on capacity pushed output expectations down to their lowest for seven months. The seasonally adjusted IHS Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 62.1 in May, up from 60.5 in April and from the earlier release 'flash' estimate of 61.5. The increase in business activity signaled among U.S. manufacturers was among the strongest in the 14-year series history. Contributing to the uptick in the headline figure was a significant expansion of production during May. The increase in output was widely attributed to stronger client demand and a further marked rise in new order inflows. The accelerated pace of growth in production was the second-strongest since late-2014. That said, component shortages and supplier delays reportedly continued to limit operating capacity, and stymied the upturn. Although the extent to which lead times for inputs lengthened softened slightly, it was among the most marked on record. New orders increased at the fastest pace on record in May, as both domestic and foreign client demand ticked higher. The upturn was often linked to the loosening of COVID-19 restrictions and successful vaccine rollouts, which led to stronger demand conditions. Similarly, new export order growth quickened, and was the sharpest since the first month of data collection in May 2007.
As a result of the combination of strong demand and supply constraints, supplier prices were hiked once again, leading to the sharpest rise in cost burdens since July 2008. Greater demand for inputs across the sector, in addition with higher logistics fees, were commonly cited as factors driving the rise in input prices. Firms sought to pass on higher cost burdens to their clients amid favorable demand conditions, with the rate of charge inflation quickening to a fresh series high. Meanwhile, backlogs of work rose at an unprecedented pace. Despite a further expansion in employment, firms noted that efforts to process work-in-hand were stymied by input shortages. As such, the rate of job creation slowed to the softest since December 2020. Others also stated that the slower rise in employment was linked to difficulties finding suitable candidates and struggles to fill available vacancies, exacerbating capacity constraints. In an effort to protect against future supply shortages, firms increased their input buying activity markedly. Pre-production inventories were built at the fastest rate on record, but stocks of finished goods fell further as holdings were used to supplement production. Finally, supply issues weighed on business confidence in May. The degree of optimism remained upbeat on average, but dipped to a seven-month low amid concerns regarding future supply flows.
Here was the commentary from the chief economist:
“US manufacturers are enjoying a bumper second quarter, with the PMI hitting a new high for the second month running in May. Inflows of new orders are surging at a rate unsurpassed in 14 years of survey history, buoyed by reviving domestic demand and record export sales as economies reopen from COVID-19 restrictions. However, elevated levels of other survey indicators are less welcome: prices charged by manufacturers are also rising at an unprecedented rate, linked to soaring input costs and unparalleled capacity constraints."
“Not only is operating capacity being curbed by record supply chain delays so far in the second quarter, but firms have also been increasingly unable to hire sufficient staff. Hence backlogs of work are building up at an unprecedented rate, as firms struggle to meet demand. These backlogs of orders should support further production growth in the next few months, adding to signs of impressive economic expansion over the summer. But manufacturers’ expectations further ahead have moderated, hinting that the growth rate is peaking, linked to worries about capacity limits being reached, rising prices hitting demand and a peaking of stimulus measures.”
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