US industry grows more slowly, employment nears the zero line

The short version

• The purchasing managers index for manufacturing stood at 54.6 points in August, one point below July and below the expectation of 55.3.
• The employment index fell by 1.6 points to 51.2, and the price index stayed unchanged at 71.1.
• New hires fell by 278,000 in July, while job openings stayed almost unchanged at 7.27 million.

The figures of the month

American industry is still growing, but more slowly. The purchasing managers index for manufacturing stood at 54.6 points in August and therefore one point below July and slightly below the expectation of 55.3.

The sub indices are more informative. The employment index fell by 1.6 points to 51.2. The price index stayed unchanged at 71.1.

The headline figure and the sub figures therefore tell two different stories. One still describes growth, the others show where this growth is getting thin.

That is exactly where the value of this survey lies. It delivers not one figure but several that put each other in order. A headline value of 54.6 points on its own would be a quiet report. Together with an employment part of 51.2 and a price part of 71.1, the same month describes a clearly more uncomfortable situation.

How the index is to be read

This distinction is often overlooked. A fall of one point sounds like weakness but still describes a majority of firms that judge their situation better than in the previous month. Only below 50 does the statement flip.

That is exactly why the employment part at 51.2 is the more delicate figure. It is still in growth territory, but only just above it. Another fall of the order of the 1.6 points it lost in August would bring it below the dividing line.

The price index and the whole picture

The price index deserves particular attention. A value of 71.1 lies far above the dividing line and means that a large majority of respondents report rising purchase prices.

That this value stayed unchanged is the real news here. A single high month would be a fluctuation. A value that stays at a high level while the employment part gives way describes cost pressure that does not clear on its own.

The sector picture fits. In the current quarter industry stands at minus 7.1 percent at the bottom of the eleven sectors in the S&P 500, while energy leads with around 21 percent.

The labour market shows the same trend. The number of new hires fell by 278,000 in July, while job openings stayed almost unchanged at 7.27 million.

Survey, share prices and labour market data therefore point in the same direction. That is the real finding, because the three sources arise independently of each other. The survey measures judgements by purchasing managers, the sector figure measures prices, and the labour market data count actually filled and open positions.

The look at job openings is particularly worthwhile here. They stayed almost unchanged at 7.27 million while new hires fell by 278,000. So it is not advertised positions that are missing but completed hires.

Assessment

An employment index of 51.2 is the most interesting figure of this survey. It lies only just above the dividing line at which companies cut staff on balance rather than build it up.

Together with the collapse in new hires that makes a clear pattern. Industry is still growing but is barely hiring.

The high price index makes the situation uncomfortable. Weakening employment alongside continuing cost pressure is exactly the combination that monetary policy works badly against.

Frequently asked questions

Does a falling purchasing managers index mean that industry is shrinking

No. The mark of 50 separates growth from contraction. A value of 54.6 means growth, and a falling value means slower growth, not decline.

Why does the price index count as a leading indicator for inflation

Because cost increases on inputs are passed on to customers with a delay. A persistently high value points to price pressure staying in the system, even when consumer prices are easing at the moment. The value of 71.1 lies far above the dividing line.

What does the employment index of 51.2 say

It lies only just above the dividing line at which companies cut staff on balance rather than build it up. Together with the drop in new hires by 278,000 in July that makes a pattern. Industry is still growing but is barely hiring.

This text is not investment advice. It reports verifiable figures and puts them in context.

This analysis is for information only and is not investment advice.