Manufacturing growth slows at start of 2020 as exports fall

U.S. manufacturing firms indicated a slower overall improvement in operating conditions in January, in part stemming from a renewed drop in export orders. Firms also increased their workforce numbers at a slower pace amid less robust demand conditions. Nevertheless, manufacturers were more confident of a rise in production over the coming year as output expectations strengthened.

Meanwhile, inflationary pressures softened and were historically subdued. In an effort to attract new clients, firms raised their output charges at only a fractional rate despite some upward pressure on costs from tariffs.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 51.9 in January, up slightly from the flash figure of 51.7, but down from 52.4 in December. The latest headline reading signalled a modest improvement in operating conditions across the U.S. manufacturing sector at the start of 2020.

The rate of output growth matched that seen in December and was moderate overall. The pace of expansion was below the long-run series trend.

At the same time, manufacturers registered a slower and only mild increase in new orders at the start of 2020. Although firms stated that the upturn stemmed from greater client requests, the pace of growth was the softest for three months. While domestic demand continued to rise, new export orders fell for the first time since last September to act as the principal drag on overall order books.

As a result, firms signalled greater hesitancy in relation to hiring additional staff, with workforce numbers rising only slightly and at the least marked pace for four months. A number of firms noted that they had not replaced voluntary leavers following slower new business growth. Companies also indicated spare capacity as backlogs of work fell for the first time since last September, hinting that jobs could come under pressure in coming months unless order book growth accelerates.

Nevertheless, goods producers expressed a stronger degree of confidence in the outlook for output over the coming year in January. Greater investment in marketing and hopes of a pick up in client demand reportedly drove sentiment to a seven-month high.

On the price front, input costs rose at the second-fastest rate since last April. Panellists attributed the rise in operating expenses to supplier price hikes, especially for metals, as well as tariffs. Firms were reluctant to raise factory gate charges, however, in an effort to stay competitive. Output prices increased at only a fractional pace overall that was the slowest for three months.

Finally, purchasing activity rose at a softer pace in January, with firms noting that input stock levels were sufficient to fulfill production requirements. Stocks of purchases were broadly unchanged and finished goods inventories decreased. Despite slower input buying, delivery delays remained moderate as suppliers reportedly faced capacity constraints.