US manufacturing output falls for first time since September 2009, throwing up questions around the possibility of a June interest rate hike
The US manufacturing sector crept closer to stagnation in May, with the Markit Flash US manufacturing Purchasing Managers’ Index (PMI) registering only slightly above the neutral 50.0 mark at 50.5.
This was down from 50.8 in April and signalled only a marginal improvement in overall business conditions that was the weakest since the current upturn started in October 2009.
Any reading above 50 indicates expansion, while a reading below signals contraction.
Last week the US Federal Reserve increased expectations for a June interest rate hike by saying the market was not taking the possibility of a hike seriously enough, according to the minutes of its latest policy meeting.
The Fed is now thought likely to hike next month unless the US economy is blown off course, though the latest factory data could derail the plans.
An interest rate raise in June would be only the second time since the financial crisis that the Fed had raised rates.
Read more: Growth slows to 0.5 per cent in world's largest economy
In April it was revealed the US economy grew at a slower rate than expected in the first quarter, increasing just 0.5 per cent in the first three months of the year.
Financial turmoil and a dramatic fall in business investment meant GDP growth in the United States came in at its slowest rate in two years and missed economists' expectations of a 0.7 per cent expansion.
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.
US manufacturers signalled the first reduction in output since September 2009 in May, although the rate of decline was only marginal.
Despite slower growth of new orders, goods producers in the US 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.
Chris Williamson, chief economist at Markit, said:
The weak manufacturing PMI data cast doubt on the ability of the US economy to rebound from its disappointing start to the year in the second quarter.
The survey is signalling that manufacturing will act as a drag on economic growth in the second quarter, leaving the economy once again dependent on the service sector, and consumers in particular, to sustain growth.
Output is falling for the first time since the height of the global financial crisis, with factories hit by slowing growth of order books and falling exports.
Earlier today it was revealed that Eurozone private sector growth has hit a 16-month low.
The slackening suggests the stronger growth around Europe in the first three months of the year has failed to hold.