In October, U.S. business activity experienced an uptick driven by robust demand, with companies raising prices for goods and services at the slowest pace in nearly four and a half years. This suggests that the economy is entering the fourth quarter on a strong note.
Positive indicators in composite PMI
According to S&P Global’s report on Thursday, the flash U.S. Composite PMI Output Index, which measures both the manufacturing and services sectors, increased to 54.3 this month, up from a final reading of 54.0 in September. A figure above 50 indicates expansion in the private sector. Retail sales data also indicates that economic growth accelerated during the third quarter.
GDP growth projections
The Atlanta Federal Reserve currently projects a 3.4 percent annualized growth rate for GDP in the last quarter. This follows a 3.0 percent growth rate observed in the April-June period. The government is set to release its advance estimate for third-quarter GDP next Wednesday.
Easing price pressures
The survey revealed that the average prices charged by businesses for goods and services dipped to 51.6, the lowest since May 2020, down from 54.6 in September. Consumers, wary of inflation, have been opting for cheaper alternatives, as reported by Reuters.
Input costs decline
Additionally, the index for prices paid by businesses for inputs decreased to 58.1 from 58.8 the previous month. This moderation in both metrics suggests that the rise in consumer prices seen in September may be temporary.
Inflation outlook
Economists anticipate that inflation will continue to decline toward the Federal Reserve’s 2 percent target. Last month, the Fed initiated an easing cycle with a significant half-percentage-point cut in its policy rate, bringing it down to the 4.75 percent to 5.00 percent range amid concerns over the labor market. The Fed had previously raised rates by 525 basis points in 2022 and 2023 to combat inflation.
Rising demand for goods and services
With easing price pressures, demand is on the rise. The index for new orders received by private businesses surged to 54.2 from 52.5 in September. The flash manufacturing PMI rose to 47.8 from 47.3 last month, although economists had predicted a decline to 47.5.
Services sector performance
The flash services PMI increased to 55.3 from 55.2 in September, surpassing economists’ expectations of 55.0.
In August 2024, U.S. business activity growth reached a four-month low, with widening disparities in growth; the service sector expanded steadily while manufacturing output declined at its fastest rate in 14 months. Despite a slight slowdown, overall output has consistently increased over the past 19 months. Optimism regarding future output improved from July’s three-month low, though it remained below the long-term average.
Manufacturing challenges
However, growth has become increasingly uneven. While service sector activity grew solidly in August, manufacturing output fell for the first time since January, marking the steepest decline since June 2023.
Export order declines
Both sectors also saw decreases in new export orders. Although the drop in services exports was minimal, the decline in manufacturing was the largest in 12 months.
Read more: U.S. fiscal profile expected to deteriorate under incoming administration, says Moody’s
Composite PMI trends
The headline S&P Global Flash U.S. PMI Composite Output Index dipped from 54.3 in July to a four-month low of 54.1 in August.
Manufacturing PMI declines
The S&P Global Flash U.S. Manufacturing PMI decreased from 49.6 in July to 48.0 in August, indicating worsening business conditions in the sector for the second consecutive month and the sharpest decline since December.
Employment declines for the first time in three months
As business activity slowed in August, employment fell for the first time in three months. The U.S. saw net job losses in three of the last five months, marking the weakest payroll growth since the first half of 2020. The service sector experienced job losses following two months of gains, alongside stagnant employment growth in manufacturing. Reduced hiring in the service sector primarily reflected challenges in staffing, while concerns about the outlook for U.S. business activity contributed to the slowdown in manufacturing employment.
Average prices for goods and services rose at the slowest rate since June 2020, aside from a recent dip in January. Inflation is now only slightly above the 10-year average prior to the pandemic.
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