IHS Markit Flash U.S. Manufacturing PMI After expanding at a record pace in July, manufacturing activity slowed a bit in August but continued to grow robustly, with the IHS Markit Flash U.S. Manufacturing PMI declining from 63.4 in July to 61.2 in August. It was the fifth straight month with the index exceeding 60—a threshold which would signal very solid expansions. Growth for new orders (down from 64.6 to 61.9), output (down from 59.7 to 56.3), exports (down from 54.8 to 53.6) and employment (down from 55.0 to 52.8) decelerated in August, but the index for future output (up from 74.1 to 75.9) strengthened, indicating a very optimistic outlook for production over the next six months.

Supply chain disruptions continue to challenge manufacturers, but the data also indicate that the rapid increase in the delta variant is having some dampening impacts, especially in the service sector. The IHS Markit Flash U.S. Services PMI dropped from 59.9 to 55.2, easing for the third straight month from the record high in May and the lowest since December. In manufacturing, the index for delivery times (down from 16.5 to 15.9) fell to the slowest on record, and raw material costs (up from 86.7 to 88.4) and output prices (up from 86.7 to 88.4) both soared once again at all-time-high rates.

The U.S. economy grew 6.6% at the annual rate in the second quarter, buoyed by consumer spending and nonresidential fixed investment, with both continuing to rebound solidly. At the same time, faster growth was held back by federal government spending, net exports, residential investment and spending on inventories.

Manufacturing activity also eased somewhat in the Kansas City and Richmond Federal Reserve Bank districts, but with a still-encouraging outlook. Inflation remained a significant challenge.