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U.S. private sector growth remains strong in July

Staff Writer |
U.S. private sector companies experienced a robust rise in overall business activity during July, supported by an improving economic backdrop and another sharp upturn in incoming new work.

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Relatively strong rates of business activity growth were recorded in both the manufacturing and service sectors.

Intense cost pressures continued in July, which resulted in a sharp and accelerated increase in average prices charged by private sector firms.

The latest rise in output charges was the fastest since composite data were first collected in October 2009.

The seasonally adjusted IHS Markit Flash U.S. Composite PMI Output Index posted 55.9 in July, down slightly from 56.2 in June and the lowest reading for three months.

Nonetheless, the headline index remained well above the 50.0 nochange threshold and signalled another robust expansion of overall private sector output.

The composite index is based on original survey data from the IHS Markit U.S. Services PMI and the IHS Markit U.S. Manufacturing PMI.

New business growth accelerated slightly in July, with survey respondents noting that improving domestic economic conditions had helped to boost client spending.

Employment growth remained solid in July, but the rate of job creation was the least marked seen since the start of 2018.

A number of private sector companies noted that tight labour market conditions and a lack of suitably skilled candidates to fill vacancies had held back their staff hiring plans.

Meanwhile, optimism about the year ahead business outlook improved since June and remained stronger than the trend seen in 2017.

Robust input cost inflation persisted across the private sector in July, which was attributed to increased fuel bills, higher staff salaries and rising raw material prices (especially for metals).

The overall rate of input cost inflation was one of the fastest seen over the past five years.

In response to higher business expenses, private sector firms recorded a sharp and accelerated rise in their average prices charged.

The overall rate of output price inflation was the fastest since this index began almost nine years ago.

The seasonally adjusted IHS Markit Flash U.S.

Services PMI Business Activity Index eased to 56.2 in July, from 56.5 in June.

The latest reading signalled a robust rise in service sector output, but the rate of expansion was the slowest since April.

There were signs of reduced pressure on operating capacity in July, despite another sharp rise in new business intakes.

This was highlighted by a fall in backlogs of work for the first time since April 2017.

Business optimism regarding the year ahead outlook improved slightly in July.

However, there were signs of greater caution in terms of staff hiring, with the latest upturn in employment numbers the weakest since January.

Meanwhile, input cost inflation remained close to the four-and-a-half year peak seen in May.

Higher fuel prices were frequently cited by survey respondents.

Service providers sought to pass on a proportion of their increased costs to clients in July, with the rate of prices charged inflation the fastest since the survey began in October 2009.

At 55.5 in July, the seasonally adjusted IHS Markit Flash U.S.

Manufacturing Purchasing Managers’ Index™ (PMI™ ) 1 was little-changed since June (55.4) and well above the average since this index began in May 2007 (52.6).

A relatively strong improvement in manufacturing business conditions reflected robust new order growth, alongside a solid upturn in both production volumes and employment numbers.

The overall improvement in manufacturing performance was underpinned by solid growth in domestic demand, which helped to offset another slight fall in export sales.

Although only marginal, the latest drop in new work from abroad was the greatest seen since May 2016.

Inventory building continued in July, with some manufacturers seeking to boost their stocks of raw materials in response to stretched supply chains.

The latest lengthening of vendor lead-times was the greatest seen in more than 11 years of data collection.

Survey respondents widely commented on low stocks among suppliers and capacity constraints across the freight industry.

On the inflation front, latest data revealed another sharp rise in average cost burdens, which manufacturers overwhelmingly attributed to higher raw material prices.

There were widespread reports that tariffs on steel and aluminium had pushed up input costs in July.

Robust client demand and efforts to protect margins resulted in the strongest rate of factory gate price inflation since May 2011.

Despite concerns about higher input costs and tight labour market conditions, manufacturing companies remained upbeat about the year-ahead business outlook.

The degree of positive sentiment picked up since June and remained comfortably above that seen on average in 2017, which partly reflected optimism regarding the outlook for domestic economic conditions.

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