US Markit Manufacturing PMI at 51.4 in September

According to preliminary data released today, the US Manufacturing sector reported a larger than expected slump in activities within the US manufacturing sector for the month of September, despite it showing a very sluggish rate of expansion in new orders this year. The market research group Markit stated in a report that its flash manufacturing purchasing managers’ index (PMI) fell from August’s reading of 52.0 to 51.4 in the month of September.

Markit stated that “the September number marked seven years of continuous growth in manufacturing, but that the headline index was below the average seen over this period (54.0) and remained close to the post-crisis low recorded in May (50.7)."

There was expectation for a fall in the index to 51.9 by analysts. A reading above 50 on the index shows growth while a reading below 50 shows contraction. Markit however noted that there was a small uptick in payroll figures, in spite of the slow growth of output volumes.

Tim Moore, a senior economist at HIS stated that “the data hinted at a sustained rally in manufacturing production, even though growth remains subdued overall”, he also warned that, “Softer new-order gains are the main concern in the latest PMI survey, and this could act as a drag on production growth into the final quarter. Alongside reports of subdued domestic demand, a renewed dip in export sales also held back growth momentum in September,”

Manufacturers are experiencing the slowest rise in new business intakes thus far this year, according to Markit. A weaker rate of output and softer business growth were cited as the largest contributing factors to a slower PMI reading. The latest growth in manufacturing production was the weakest for three months. Participants in the survey indicated that the overall soft economy “acted as a brake” on new order volumes. A stronger dollar was said to weigh on export sales as well. New work in the sector climbed at the slowest rate since December 2015.

Looking to the positive side, the creation of new jobs strengthened after reaching a 4 month low in August, there was also a rise in purchasing activity in September, which makes gave it 5 consecutive months of sustained growth. Input cost inflation remains subdued in the entire manufacturing sector. In the last 6 months, input prices have mounted back to back increases each month, but the rate of increase recorded was the lowest during that stretch. Strong competition for new work and low cost inflation have led manufacturers to cut down on their output charges.

In the moments following this data release, U.S. government debt prices soared as investors digested the release of September manufacturing activity and comments from Fed speakers. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, was last lower at 1.6116%, while the yield on the 30-year Treasury bond was near 2.3346%.

Other market instruments showed limited response following the release of the data. The ICE US Dollar Index is currently trade up by 20 bps to 95.64. The S&P 500 is off by 0.28 bps to 2,171, while the Nasdaq Composite is lower by 30 bps to 5,324. Gold is relatively unchanged at $1,343 per ounce. WTI crude oil is lower by 10 bps to $46.27.