U.S. Manufacturing Output Declines

Manufacturing output in the U.S. contracted at a slightly softer but still severe rate in May as the Covid-19 pandemic led to lower demand and new order inflows from both domestic and foreign customers, a survey of the manufacturing sector said.

Data firm IHS Markit said Monday its U.S. manufacturing purchasing managers index ticked up to 39.8 in May from 36.1 at the start of the second quarter. The figure marked the second-steepest deterioration in manufacturing operating conditions since April 2009 despite being higher than April’s nadir, according to IHS Markit.

With the exception of April’s low, IHS Markit said the contraction rate was the fastest since February 2009, with new business falling for the third month running. Firms cut jobs at the second-quickest rate in more than 11 years amid sliding sales, the firm said. IHS Markit said output outlook turned negative for only the second month since its data collection began in July 2012 for the series.

Chris Williamson, the chief business economist at IHS Markit, said manufacturing remained in a deep downturn for the month as measures to contain the pathogen’s spread led to production losses, supply-chain disruptions, and collapsed pricing power. He warned that recovery could be slow, with job security and damaged balance sheets denting consumer and business spending.

“With increasing numbers of companies restarting production, we should see some improvements in the output trend in coming months, and it was reassuring to see signs of the downturn already starting to ease in May, suggesting April was the eye of the storm as far as the production collapse is concerned,” Mr. Williamson said. “The recovery will of course also fade quickly if virus infections start to rise again.”

IHS Markit said the decline in foreign sales was the second-fastest on record in May, and lower new order volumes led to a decline in backlogs of work amid signs of excess capacity. Weak demand led to lower input prices, and purchasing activity fell as firms sought to leverage current inventories to cut costs, IHS Markit said.

via HSN