U.S. business activity growth hit a four-month low in August as growth disparities widened further with the service expanding at a solid rate while manufacturing output declined at the fastest rate for 14 months. Output witnessed a constant increase over the past 19 months. Although the pace of expansion slowed slightly in August, it remained among the highest in the last two years.
Optimism about output in the year ahead lifted from July’s three-month low, but remained below the survey’s long-run average.
Growth increasingly uneven
However, growth has become increasingly uneven. While service sector activity grew at a solid rate in August, manufacturing output fell for the first time since January. The factory output decline was the steepest recorded since June 2023.
Nevertheless, both sectors recorded falling volumes of new export orders. Although the drop in services exports was only very modest, the decline in manufacturing was the largest for 12 months.
The headline S&P Global Flash US PMI Composite Output Index edged down from 54.3 in July to a four-month low of 54.1 in August.
“The solid growth picture in August points to robust GDP growth in excess of 2 percent annualized in the third quarter, which should help allay near-term recession fears,” stated Chris Williamson, chief business economist at S&P Global Market Intelligence.
Manufacturing sector dips
The S&P Global Flash US Manufacturing PMI fell from 49.6 in July to 48.0 in August, signaling a deterioration in business conditions within the sector for the second month straight and the steepest rate of deterioration since December.
“Growth has become increasingly dependent on the service sector as manufacturing, which often leads the economic cycle, has fallen into decline. The manufacturing sector’s forward-looking orders-to-inventory ratio has fallen to one of the lowest levels since the global financial crisis,” added Williamson.
Employment drops for first time in 3 months
As the U.S. business activity slowed in August, employment fell for the first time in three months. The country reported net job losses in three of the past five months, marking the softest payroll growth since the first half of 2020.
The service sector saw a fall in jobs after two months of gains in addition to a near-stalling of employment growth in the manufacturing sector. While falling employment in the service sector largely reflected difficulties in hiring staff and replacing leavers, the cooling job market in manufacturing was due to growing concerns about the U.S. business activity outlook.
Read| Japan’s manufacturing activity dips for second straight month in August: PMI
Average prices grow slower
Average prices for goods and services rose at the slowest rate since June 2020, barring only the recent dip seen in January. The rate of inflation is now only marginally above the 10-year average prior to the pandemic.
“The fall in selling price inflation to a level close to the pre-pandemic average signals a ‘normalization’ of inflation and adds to the case for lower interest rates,” Williamson added.
Although selling price inflation ticked higher in manufacturing, July’s reading was the lowest in over a year. Meanwhile, selling price inflation cooled in the service sector to the second-lowest rate since May 2020, only marginally above the prepandemic average.
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