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US Manufacturing Industry Expands at a Slower rate, but Remains Close to 4-Year Peak: Markit

H.S. Borji
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The US manufacturing industry continued to advance in July, although output and new orders rose at a slower rate while job creation was the weakest since September 2013.

Markit Group’s flash estimate of US manufacturing activity declined 1 percentage point to 56.3. A median estimate of economists called for a gain of 0.2 percentage points to 57.5. A reading above 50 is a general sign of expansion in manufacturing activity, whereas a reading below that level signifies contraction.

Manufacturing production eased in July after growing at its sharpest pace in more than four years, but overall output growth remained well above the 50.0 mark. New business growth remained strong, albeit softer than the previous month. New export orders remained relatively tame, suggesting that domestic demand continues to drive the manufacturing recovery.

July marked the thirteenth consecutive month manufacturing employment rose in the US, as new business growth and greater backlogs of work supported job creation, albeit at a slower pace. Employment growth eased for the first time since April and was the weakest since September 2013.

Weaker job creation in July reflected concerns about sustainable sales growth, especially in the area of export sales. Slower output growth and cautious hiring policies were also cited as factors.

The pace of job creation in the broader US economy accelerated at a faster pace in the first half of the year, as US nonfarm payrolls surpassed the 200,000 mark in each of the last five months. The US economy added 288,000 nonfarm payrolls in June, as the unemployment rate dipped to 6.1 percent.

A separate report today from the Labor Department showed initial jobless claims fell 19,000 to 284,000 for the week ended July 12. That marked an eight-year low.

Continuing jobless claims fell from 2.510 million to 2.5 million in the week ended July 19, official data showed.

“US manufacturers are enjoying a summer of scorching growth,” said Markit chief economist Chris Williamson in a statement. “Output grew in July at a rate only just below the four-year peak seen in June as inflows of new orders surged higher again. The data suggest the sector is growing at an [annualized] rate of roughly 8% as we moved into the second half of the year.”

Today’s figures support the view the economy maintained its robust pace at the start of the third quarter, building off a solid second quarter that likely saw gross domestic product expand at an annual rate of more than 3 percent. Gross domestic product is expected to accelerate further in the second half of the year as the economy recoups first quarter losses.

“The growth rebound that the survey has signaled for the second quarter therefore looks to have been sustained into the third quarter,” Williamson added.

The US economy contracted at an annual rate of 2.9 percent in the first quarter, according to the Commerce Department, as inclement weather weighed on activity.

The Commerce Department will provide its first estimate of second quarter GDP growth on July 30.

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