U.S. Manufacturing PMI Shows Strongest Rate Growth Since March 2015

November data pointed to a sustained acceleration in U.S. manufacturing growth, with production volumes and incoming new work both rising at the fastest pace since March 2015. Stronger demand patterns, especially from domestic clients, resulted in greater input buying and increased payroll numbers across the manufacturing sector. Meanwhile, factory gate charges increased only slightly in November amid a slowdown in cost inflation from October’s two-year high.

The November final Markit PMI manufacturing index was revised up to 54.1 from the flash reading of 53.9 and October’s 53.4. This was the joint-highest reading since March 2015 and above consensus expectations of 53.9.

US manufacturers are slowly picking themselves out of a rut that was triggered, in part, by the dollar's rapid rise in 2014. The dollar rose as investors bet that higher interest rates and inflation were coming. They turned super bullish again in November after Donald Trump was elected, sending the dollar to the highest level since 2003. A stronger dollar makes it more expensive for people outside the US to buy American products.

Mirroring the trend for new business, latest survey data highlighted the steepest rise in production volumes since early-2015. Increased manufacturing output has now been recorded for six months in a row, and the latest expansion was faster than the post-crisis trend. Alongside stronger sales, higher production also reflected efforts to boost inventories. Stocks of finished goods have risen in each of the past two months, in contrast to the declines seen through the third quarter of 2016.

Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“The final PMI numbers have come in even stronger than the preliminary flash reading, adding to signs of buoyant business conditions in the US manufacturing sector”.

“Both production and order books are growing at impressive rates, fuelled predominantly by rising domestic demand for goods from both consumers and businesses. Companies are also rebuilding stock levels, suggesting the recent inventory drag is easing”.

“The stronger dollar is hurting exporters, but the flip-side of the exchange rate appreciation is lower import costs, which have in turn helped to ameliorate the impact of rising global commodity prices compared to other countries”.

“However, although employment rose, the survey found ongoing caution in respect to hiring new staff, linked in turn to uncertainty about the outlook and worries about rising costs.”

The dollar overall maintained a robust tone with USD/JPY moving back above the 114.50 level with US Treasuries under further pressure as the 10-year yield moved above 2.45%. US equities were slightly lower as Nasdaq continued to under-perform.