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  • KPB & Co Research

IHS Markit's May report on US manufacturing Purchasing Managers' Index highlighted that US businesses remain cautious on the economic environment, owing to tighter demand conditions, and trade conflicts. According to the report, the headline PMI index declined to the lowest levels seen since September 2009, within the context of slower output growth, and declines in new orders - which fell for the first time since August 2009. Developments in the job market show that employment continued to increase, but the pace of increase have been declining. Overall business optimism remains subdued.

IHS Markit US Manufacturing Purchasing Manager's Index
Markit Economics

The reports show that the seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers' Index (PMI) came in at 50.5 in May, down from 52.6 in April. Data for Q2 -2019 indicated that manufacturing activity has slowed sharply when compared to Q1 of 2019. The key driver behind the slowdown was the slowdown in the growth of economic output, with the marginal increase in output linked to the one-off clearing of order backlogs. Manufacturers also indicated that new orders would slowdown - the first slowdown since August 2009- as both domestic and external customers postponed orders due to uneasiness about future economic growth.

While employment levels continued to increase in May, the increase in employment was driven primarily by the replacement of workers who were retiring or voluntarily leaving the workforce. Firms continued to keep purchases low, as they relied on existing inventories to meet demand, in the face of an expected slowdown in demand in the future. Input cost inflation increased moderately on account of higher tariffs offset by greater competition among suppliers.

Overall manufacturer sentiment remained soft for the upcoming year. According to the report, expectations for growth dipped to lowest level seen since data have been recorded in July 2012. Firms highlighted issues around growing trade tensions with china, and a growing number of large customers delaying orders.

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