PMI 12-Month Record
According to a monthly survey from IHS Markit Ltd, manufacturers are in the best shape they’ve been in for 12 months running.
The Purchasing Managers’ Index (PMI) showed an increase in its headline number, from 51.5 in September to 53.2 in October. Since analysts had only expected 51.5 for this month, the higher-than-expected result has buoyed optimism about where the market is headed. (Source: “Markit Flash U.S. Manufacturing PMI,” IHS Markit, October 24, 2016.)
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“October data signalled that U.S. manufacturers started the fourth quarter in a strong fashion, with output and new order volumes rising at markedly faster rates than in September,” Markit wrote. “A rebound in business conditions contributed to greater input buying among manufacturing firms and renewed pressures on capacity.”
Better still, there was a corresponding uptick in new orders, meaning that growth in the PMI is expected to continue. After months of being downcast, the new orders index bounced from 51.1 to 54.7, which was also a 12-month high.
“In line with the trend for output volumes, latest data highlighted that incoming new orders picked up at the fastest pace for 12 months,” Markit continued. “Anecdotal evidence suggested that new product launches and stronger domestic demand had resulted in greater sales volumes.”
Manufacturers suggested that economic conditions were improving, but that many would rather wait till after the 2016 presidential election before making further investments. The optimism on domestic demand also helped analysts distract from weaker numbers in the export column.
What impact the data will have on labor conditions is perhaps the most exciting feature of the latest report. Analysts noted several stats that showed businesses were having capacity issues, meaning they would need more staff to handle the increased demand.
“Higher levels of incoming new work resulted in a greater degree of backlog accumulation across the manufacturing sector during October,” Markit reported. “Some firms commented on increased capacity pressures at their plants, in part reflecting subdued job hiring in recent months.”
On the whole, the report’s authors seem to believe that both production and demand are tied to the election. If they are correct, manufacturing PMI should continue hitting new highs through the remainder of 2016.
