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US Manufacturing Sector Surges Ahead: Markit

H.S. Borji
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US Manufacturing Sector Surges Ahead: Markit

The US manufacturing industry continued to build momentum in May, as production increased sharply and employment rose for the eleventh consecutive month.

Markit Group’s gauge of US manufacturing activity climbed 0.8 percentage point to 56.2, exceeding estimates for 56. A reading above 50 is a general sign of expansion in manufacturing activity, whereas a reading below that level signifies contraction.

Overall operating conditions continued to improve in May, as output rose at the fastest pace in over three years. Output has expanded consistently for the past four-and-a-half years, with the latest expansion the result of higher new orders and work on existing contracts.

Greater confidence in the domestic market resulted in higher volumes of new work, a sign US demand continues to spearhead the manufacturing recovery. New export sales expanded at a modest pace, Markit data showed.

Rising new orders and increased pressure on capacity kept job creation elevated in May. Employment increased for the eleventh consecutive month, albeit at the slowest rate since the beginning of the year. Strong hiring intentions pointed to increased confidence among manufacturers, which in turn resulted in higher purchasing activity.

The latest PMI reading shows US manufacturers were recovering strongly after a prolonged battle with inclement weather.

“The US manufacturing sector continued to gain strength heading into mid-year as supportive demand conditions led to the sharpest month-on-month increase in production for over three years,” said Markit senior economist Paul Smith in a press release. “This provides further confirmation that industry will aid a rebound in [US] GDP in the second quarter, and other indicators from the survey suggest that the sector has plenty of momentum heading into the summer and beyond.”

The US economy expanded 0.1 percent annually in the first three months of the year, according to an advance estimate from the Commerce Department. However, latest data suggest the economy actually contracted in the first quarter. The Commerce Department will post revised GDP data next week.

Early estimates say the US economy is poised to rebound strongly in Q2 at a rate of 3.5 percent.

Smith also said that manufacturers probably added between 15,000 and 20,000 jobs in May, in line with the previous month’s estimate. This trend is expected to continue as factories ramp up to meet demand for new orders.

US employers have ramped up considerably the past three months, adding to the view the labour market was recovering markedly after the winter downturn. The US economy has added an average of 238,000 payrolls over the past three months. The Labor Department will release May non-farm payrolls data June 6.

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