Record rise in PMI manufacturing

June PMITM data signaled only a fractional deterioration in U.S. manufacturing conditions as goods producers and their customers began to reopen amid looser restrictions following the outbreak of coronavirus disease 2019 (COVID-19). The downward trend in production eased markedly as new orders stabilized amid reports of a relative improvement in demand conditions. Companies reported a further drop in workforce numbers as evidence of spare capacity remained, but the rate of job losses also moderated sharply. Optimism about the year ahead meanwhile revived considerably. 

At the same time, inflationary pressures picked up, as both input costs and output charges rose for the first time in the second quarter.  

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 49.8 in June, up a record 10 points from 39.8 in May, to signal a marked easing in the overall manufacturing downturn. The latest figure was also slightly higher than the earlier released 'flash' reading of 49.6.  

Contributing to the slower decline in operating conditions was a stabilization of new orders. No change in client demand in June brought to an end a three-month sequence of contraction in new business and signaled a notable turnaround from the severe decrease seen in April. Where an increase was reported, firms linked this to a gradual pick-up in demand as customers reopened. New export orders continued to fall, however. Although modest, the drop in external sales was linked to some export markets remaining closed amid COVID-19 restrictions and reports of some customers switching to local suppliers. 

With signs of firmer demand conditions, production fell at a sharply reduced rate in June. Where output declined, it was largely linked to historically muted order inflows and the ongoing closure of some factories. Nonetheless, the overall rate of contraction was the slowest since February as other companies reported the end of temporary shutdowns. 

Meanwhile, cost burdens rose in June as suppliers hiked their prices due to logistical issues and higher shipping costs. The increase was only marginal, however. At the same time, firms partially passed on greater input prices to customers through higher selling prices. That said, the increase in output charges was only slight as firm sought to remain competitive under challenging demand conditions. 

Employment across the manufacturing sector declined for the fourth month running in June, as firms shed workers at a moderate pace following subdued demand. Signs of excess capacity remained evident as manufacturers registered a sharp reduction in backlogs of work. However, the overall loss of jobs was considerably weaker than those seen in the prior two months. 

Goods producers also indicated renewed optimism that output would increase over the coming year. Positive sentiment stemmed from hopes of a sustained pick-up in client demand and an end to the pandemic. The degree of confidence was solid overall and reached a four-month high. 

Finally, manufacturers recorded further falls in both pre-and post-production inventories as stocks were used to fulfill new orders, though rates of decline slowed markedly compared to May