New orders log brisk ascent, output highest since 2011 and six-month outlook looks promising, reports Team IFM
New York, June 19: A key measure of factory conditions in New York State for June topped the multiyear high reached last month, indicating that the improved business situation is likely to continue, even as an independent economy tracker said the overall American manufacturing activity in May witnessed the sharpest rise in output since February 2011.
The Empire State Manufacturing Survey report for June, released on Monday, indicates business conditions improved significantly for a second consecutive month for New York manufacturers, with the headline general business conditions index at 19.3, the strongest since June 2010.
It easily topped last month’s multiyear high of 19.1 and was way ahead of the median reading of 15 forecast by analysts polled by Reuters.
This was primarily on account of the new orders index climbing eight points to 18.4, its highest level in four years though the gains were offset to an extent by the shipments index dipping to 14.2. The unfilled orders index held steady at a level close to zero.
The indexes for both prices paid and prices received were slightly lower, indicating a slowing in the pace of price increases, said the report by the Federal Reserve Bank of New York.
Labour market conditions too continued to improve, it said, with indexes pointing to a modest increase in employment levels and hours worked.
“Indexes for the six-month outlook remained highly optimistic, with the future new orders and shipments indexes recording notable gains,” the Federal Reserve said in a note.
Earlier this month, economy tracker Markit released its May report for the manufacturing sector, saying its data signalled that output growth at US factories continued to pick up speed through the second quarter, thanks mainly to a sharp upswing in new business volumes.
Greater production requirements and efforts to rebuild stocks of purchases meanwhile contributed to a survey-record increase in input buying during the latest survey period.
Adjusted for seasonal influences, the final Markit US Manufacturing PMI, which is designed to signal changes in prevailing business conditions in the country, picked up to 56.4 in May, from 55.4 in April.
“Purchasing managers reported a further surge in business activity in May,” said Chris Williamson, Chief Economist at Markit, in a note. “With the exception of a brief spell in early-2010, output is growing at the fastest rate seen since prior to the financial crisis.”
BETTER CONDITIONS
Meanwhile, the Federal Reserve report said business conditions improved significantly for a second consecutive month for New York manufacturers.
“After climbing to a multiyear high last month, the general business conditions index held steady at 19.3,” it said. “Forty percent of respondents reported that conditions had improved over the month, while 21 percent reported that conditions had worsened.”
The new orders index advanced eight points to 18.4, its highest level in four years. The shipments index fell three points but, at 14.2, still pointed to a significant expansion in shipments over the month.
The unfilled orders index remained under 1.1, “indicating that the level of unfilled orders was largely stable,” the Fed Reserve said.
The delivery time index rose two points to 1.1, while inventories index rose seven points to 9.7, indicating that inventory levels were somewhat higher in June.
Also for the second consecutive month, both price indices – paid and received – inched lower, suggesting that increases were somewhat slower over the month. The prices paid index fell three points to 17.2, while the prices received index fell two points to 4.3.
After surging last month, the index for number of employees fell back to 10.8, suggesting that employment levels continued to climb, though at a more modest pace than last month. The average workweek index moved up seven points to 9.7, pointing to an increase in hours worked.
ROBUST OUTLOOK
The report said that as in May, indexes for the six-month outlook conveyed a strong degree of optimism about future business conditions.
The index for future general business conditions fell four points, but remained high at 39.8, while the future new orders index climbed to 44.5, and that for expected shipments rose 11 points to 45.2.
Indices for expected prices were somewhat higher, with the future prices paid index rising five points to 36.6 and the index for future prices received climbing two points to 16.1. The index for expected number of employees rose to 20.4, and the future average workweek index rose to zero.
The capital expenditures index fell for a second consecutive month, dropping to 11.8 – which, according to the Federal Reserve, was “a sign that while capital spending plans were generally positive, spending growth was expected to slow”.
The technology spending index was little changed at 3.2, suggesting only a slight increase in technology spending.
FASTEST GROWTH
Meanwhile, the latest Markit reading was well above the neutral 50.0 value and signalled a robust improvement in overall business conditions, and added to signs that the economy has enjoyed a strong revival after shrinking due to the adverse weather at the start of the year.
It also pointed to a steep increase in production levels, with the rate of expansion accelerating for the second month running to the fastest since February 2011.
“Anecdotal evidence from survey respondents cited improving underlying demand, better economic conditions and greater investment spending among clients,” Markit said.
According to the data, large manufacturers with more than 500 employees registered the fastest output expansion of the three company size categories monitored by the survey. Consumer goods producers recorded the strongest improvement and witnessed the sharpest rise in new business received by consumer goods producers for just over four years.
“This is not simply a weather-related rebound,” said Markit economist Williamson. “Companies are reporting that their customers and feeling more confident, restocking, expanding and investing.”
The economist also felt it was the household sector in particular is leading the upturn, with demand for consumer goods rising at the fastest rate for four years.
“This is therefore very much a domestic led upturn, but it is encouraging to also see that growth of export orders picked up in May, pointing to an improved trade balance in the second quarter,” Williamson said.