A renewed fall in production was one key factor weighing on the headline index in May, alongside softer new order growth and further cuts to stocks of inputs. U.S. manufacturers signalled the first reduction in output since September 2009 in May, although the rate of decline was only marginal. A number of monitored firms mentioned that uncertainty around the general economic outlook had caused clients to delay spending decisions, which in turn prompted firms to trim their production schedules.
Softer client demand was highlighted by a further slowdown in new business growth in May. Furthermore, the latest expansion in new order books was the weakest seen in 2016 so far. Data indicated that reduced foreign client demand had underpinned slower growth in overall new orders. New export sales fell for the second month in a row, though the rate of reduction softened since April.
A general lack of pressure on operating capacity was signalled by the latest survey data, with outstanding work at U.S. manufacturers falling for the fourth successive month in May. The rate of backlog depletion was unchanged from April’s postrecession record and moderate overall. Despite slower growth of new orders, goods producers in the U.S. continued to add to their payroll numbers in May. The rate of employment growth was only slight, however, despite picking up from April’s 34- month low.
Manufacturing firms continued to adopt relatively cautious inventory policies in the face of an uncertain business outlook and weaker new order growth. Stocks of inputs declined for the sixth month running and at a rate that was only slightly weaker than in April. Meanwhile, inventories of finished items rose marginally in May, following a slight reduction in the previous month.
Buying activity increased at a marginal pace in the latest survey period, after a modest reduction in April. Although demand for inputs was relatively muted, average supplier performance continued to deteriorate, with lead times lengthening at a modest pace in May.
Overall input prices rose for the second month running in May, with some companies citing higher costs for raw materials such as metals and oil. Despite quickening since April, the pace of inflation remained moderate overall and slower than the series average.
Average selling prices set by U.S. manufacturers were broadly unchanged in May, thereby ending a three-month sequence of price discounting. Reports from panellists indicated that greater cost burdens had led some firms to raise their charges in the latest survey period.