Hindsight is usually perfect but of little use in today’s fast-paced manufacturing environment in the U.S. and around the world. The IHS Markit Flash Purchasing Managers Index (PMI) tracks business trends across the manufacturing sector in the U.S. In addition to keeping up with the monthly Institute for Supply Management (ISM) PMI, monitoring the Flash PMI is another tool manufacturers can use to develop business foresight.
What is the IHS Markit Flash PMI?
While the ISM PMI is based on replies to questions analysts ask of over 300 purchasing and supply executives in businesses across the U.S., IHS Markit PMI analysts question those at over 400 businesses. The latter is a composite index based on a weighted combination of many individual sub-indices, including “Output, new orders, new export orders, backlogs of work, output prices, input prices, suppliers’ delivery times, stocks of finished goods, quantity of purchases, stocks of purchases, employment, future output.” The Flash PMI estimate, on the other hand, offers an accurate preview of the final PMI data based on 85% to 90% of total PMI survey responses in advance of each month’s final official release.
The Flash Composite Output index is based on two indexes, the Manufacturing Output Index and the Services Business Activity Index, and measures month-to-month change in the manufacturing sector. It offers manufacturers valuable insights pertaining to the general health of their industry and the overall economy.
How can the IHS Markit Flash PMI help manufacturers?
We all have moments of “if only I’d known then what I know now.” Manufacturers monitoring the April 23 Flash PMI in advance of the May 9 official PMI release already knew:
- Manufacturing growth is robust. U.S. manufacturers saw the highest overall improvement in business conditions since September 2014. Like the ISM PMI, an IHS Markit PMI reading of 50 or more indicates expansion. The Manufacturing Flash PMI advanced to 56.5 in April as compared to 55.6 last month.
- The overall employment growth rate slowed. Slight cause for concern exists on the employment and labor front, which, despite healthy demands and rising capacity concerns, registered a slowdown in job growth. The job creation rate dropped to an eight-month low and could be the result of increased efficiency in manufacturing processes due to shortages in skilled labor along with a push for automation.
- The industry is showing signs of inflation. Raw materials costs increased the fastest in five years, indicating a rise in inflation. The steep rise in raw materials costs is attributed to tighter supply availability and tariffs. That rise in cost was further exacerbated by new orders increasing.
- Manufacturing appears ready for a robust second quarter. The report clearly suggests that, after a slow start, the economy is now poised for a strong next quarter. Output and new orders are driving manufacturing sector growth, and the growth in new orders has resulted in a robust increase in the level of outstanding business, which likely indicates stronger months ahead.
Analysts expect U.S. economy expansion to grow the GDP by 2.5% this year, but manufacturers in particular should keep an eye on inflation pressures and skilled labor shortages. Still, with continued growth and an optimistic second-quarter outlook, manufacturers have much to look forward to.