U.S. business activity growth remained robust in September, signaling a sustained economic expansion over the third quarter despite a rise in price pressures. A solid expansion in the service sector contrasted with a second successive month of modest declines in output in the manufacturing sector.
Despite signs of economic expansion, the U.S. saw a deterioration in business expectations for the year ahead to a near two-year low which reflected greater uncertainty ahead of the presidential election. Therefore, companies held back on hiring, which led to employment falling for a second consecutive month.
Manufacturing sector slips further
The latest headline S&P Global Flash U.S. PMI Composite Output Index registered 54.4 in September, down slightly from 54.6 in August but ending the strongest quarter since the first three months of 2022.
Meanwhile, the S&P Global Flash U.S. Manufacturing PMI fell from 47.9 in August to 47.0 in September, signaling a deterioration in business conditions in the sector for a third consecutive month and the steepest rate of deterioration since June 2023.
“The early survey indicators for September point to an economy that continues to grow at a solid pace, albeit with a weakened manufacturing sector and intensifying political uncertainty acting as substantial headwinds,” stated Chris Williamson, chief business economist at S&P Global Market Intelligence.
Service sector activity grows
While the U.S. service sector activity grew at the second-highest pace in the past 29 months and supported economic expansion, manufacturing output fell for a second consecutive month, albeit dropping only modestly and at a slower rate than in August.
“The robust expansion of output signaled by the PMI in September is consistent with a healthy annualized rate of GDP growth of 2.2 percent in the third quarter,” added Williamson.
Sector variances were even more prominent in order books. Inflows of new work in the service sector rose at a rate just shy of August’s 27-month high, but new orders at manufacturers fell at the sharpest rate in 21 months.
In addition, new export orders for services rose at a faster rate while goods export orders fell at a faster pace, highlighting divergent broader global demand conditions. Therefore, backlogs of orders rose slightly at service providers but fell sharply at the fastest rate for nine months in factories.
Price pressures persist
Prices rose at the fastest rate in six months due to input cost growth accelerating to a one-year high. The rise in selling price inflation was common across goods and services, with both hitting six-month highs. Service sector input cost growth also hit a 12-month high due to reports of wage growth.
“A re-acceleration of inflation is meanwhile also signaled, suggesting the Fed cannot totally shift its focus away from its inflation target as it seeks to sustain the economic upturn,” added Williamson.
Amidst signals of an economic expansion, U.S. employment fell for the second month straight in September and has now fallen in four of the past six months. That said, the overall decline was very modest and less than in August.
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