US manufacturing PMI growth slows and prices rise in April

US Preliminary Composite PMI for Output (1): 51.2 (March: 53.5). 16-month low. US Preliminary PMI for Business Activity (2): 51.4 (March: 54.4).

US business activity growth slowed to a 16-month low in April, according to data from the preliminary US PMI survey, with companies’ expectations for next year also falling to one of the lowest levels recorded since the pandemic. Meanwhile, prices of goods and services rose at their highest rate in just over a year, with a particularly sharp increase in manufactured goods, linked to tariffs.

The S&P World Composite Purchasing Managers’ Index for US output fell from 53.5 in March to 51.2 in April, according to the preliminary preliminary reading (based on nearly 85% of the usual survey responses). The decline in the index indicates that activity growth slowed to a 16-month low, compared to a three-month high recorded in March.

Services business activity growth slowed sharply to a modest pace, marking the second weakest expansion recorded last year, in response to slowing order book growth. New business flows in the services sector showed the second-lowest increase recorded in the past eleven months, and respondents often linked them to the  uncertainty surrounding the economy and tariffs.

Meanwhile, manufacturing output returned to growth after falling in March, albeit marginal expansion. While new orders to factories rose at a slight rate, linked to higher domestic orders, the increase was modest, curbed by a marked decline in export orders. While tariffs have reportedly helped in some cases increase new sales to domestic customers, trade policy has been closely linked to lower overseas sales.

Components of the US manufacturing and their economic importance

The Services PMI report (Services PMI) usually consists of several key components that provide insights into the state of the services sector. These components include:

Business activity: This component measures the level of business activity in the services sector during the reporting period. It reflects whether companies are experiencing growth, contraction or stability in their operations.

New orders: New orders refer to the demand for services in the market. An increase in new orders indicates increased demand, while a decline may indicate weaker demand.

Employment: The Employment component of the Services PMI report shows changes in the level of employment within the services sector. It indicates whether companies are hiring, laying off, or maintaining their workforce.

Work arrears: Work arrears represent the amount of unfinished work accumulated by service providers. A high level of arrears may indicate capacity constraints or increased demand.

Business Outlook: This component measures providers’ sentiment regarding future business conditions. A positive outlook can indicate confidence in future growth, while a negative outlook may indicate concerns about economic conditions.

Supplier deliveries: Supplier deliveries measure the speed at which services are delivered by suppliers to businesses. Slower deliveries may indicate supply chain disruptions or increased demand.

Composite PMI: The composite PMI combines the Services PMI and the Manufacturing PMI to provide a comprehensive overview of economic activity in both the services and manufacturing sectors.

Together, these components provide a detailed picture of the health and performance of the service sector, providing valuable insights into economic trends, business conditions and potential future developments. Analyzing these components helps businesses, policymakers, and investors make informed decisions based on the current state of the service industry.

Difference between PMI for services and manufacturing

The services PMI (services PMI) and the manufacturing PMI (manufacturing PMI) are both important indicators of economic health, but they focus on different sectors of the economy. Here are some of the key differences between the two:

Sector Focus:

• The Services PMI measures business activity in the services sector, which includes industries such as healthcare, finance, retail, hospitality, and transportation.
• On the other hand, the manufacturing PMI focuses on the manufacturing sector, which involves the production of physical goods such as automobiles, machinery, and electronics.

Nature of output:

• The PMI in the services sector reflects the provision of intangible services, such as consulting, education, healthcare and tourism.
• The manufacturing PMI reflects the production of tangible goods in factories and facilities.

Differences in the supply chain:

• Manufacturing usually involves complex supply chains with raw materials, intermediate goods, and finished products.
• Services are often delivered directly to consumers or other businesses, relying less on complex supply chains than manufacturing.

Factors affecting performance:

• The performance of the services sector is closely linked to consumer spending, business investment, and general economic sentiment.
• The performance of the manufacturing sector is influenced by factors such as global demand for goods, industrial production, and input costs.

Impact on the economy:

• The services sector tends to be more resilient during economic downturns, when demand for certain services such as healthcare and education remains relatively stable.
• Manufacturing is more cyclical and sensitive to changes in world trade, industrial production, and consumer demand for durable goods.

Employment Patterns:

• The services sector is often more labor-intensive than manufacturing, with a higher proportion of service jobs in many economies.
• Manufacturing tends to employ a smaller share of the workforce but can have significant multiplier effects on employment due to its impact on related industries and supply chains.