Looking at the individual drivers reveals further insight into why minor improvements did not and may not continue to translate into increased production.
As we mentioned in Part 1, there was a loss of momentum (new orders minus inventory) in September with respect to August. The production sub-index fell 0.7 points to 50.2, which is expected given the loss of momentum.
Plus, the loss of momentum is the reason why the employment rate remained flat in contraction territory despite continued production expansion.
Inflation pressures remain
While inflation sub-indices aren’t part of the components that make up the headline PMI score, it’s important to review them as well to understand the pricing and margin dynamics. Both input and output prices sub-indices expanded 0.5 points, though the input prices sub-index remains almost 2 points ahead, at 53.2.
What this means is that inputs continued to expand for the second consecutive month at a higher pace than the prices charged, reflecting a lack of cost passed through to consumers. This is generally driven by increased competition and weak demand, which causes margin squeezes in the longer term, as costs rise faster than inputs.
While on its own, this may be a weak signal, it does add to the rest of the negatively biased data from the PMI survey.
There are a few bright spots, though. Read on to discover them.