In August, the growth of private-sector output has declined to its lowest point in four months, driven primarily by persistent weaknesses in the manufacturing sector. This information is derived from the flash Purchasing Managers' Index (PMI) released by S&P Global, which indicates a mixed performance across different sectors.
The composite output index saw a slight dip, falling to 54.1 this month, down from July's figure of 54.3. Interestingly, this still surpasses the 53.2 consensus predicted in a survey conducted by Bloomberg. It's important to note that the key 50-point threshold differentiates between expansion and contraction, indicating that while growth is slowing, it still remains among the highest metrics reported over the last two years. S&P Global's Chief Business Economist, Chris Williamson, commented on the findings, stating, "The solid growth picture in August points to robust GDP growth exceeding 2% annualized in the third quarter, which should help alleviate near-term recession fears." This sentiment is coupled with a notable decline in inflation rates concerning selling prices, which are now aligning closely with pre-pandemic averages.
He also suggested that this data supports considerations for easing monetary policy by the Federal Reserve. On the manufacturing front, the PMI experienced a significant drop, plummeting to an eight-month low of 48 in August from 49.6 in July. On the contrary, the service sector demonstrated robust performance, with output rising to a two-month high of 55.2, up from 55.
Wall Street had anticipated figures of 49.5 and 54 for the respective sectors. Furthermore, manufacturing output is reported to have contracted at its fastest rate in 14 months, highlighting the ongoing challenges within that sector. The report indicated that all five components of the manufacturing PMI displayed signs of weakening this month, particularly manifesting in sharper declines in both new orders and inventories.
Moreover, employment growth is nearing stagnation, reflecting broader economic concerns. In fact, the overall private-sector employment has dropped for the first time in three months, suggesting that net job losses have now been reported in three out of the last five months. This marks the weakest payroll growth period since the first half of 2020. Looking ahead, there is an increase in optimism regarding output over the next year as compared to a three-month low reported in July, although it remains below historical averages as captured in the survey.
Companies are grappling with uncertainty surrounding the upcoming US presidential election in November and concerns regarding future demand, especially within the manufacturing sector. Williamson concluded by noting the complexity of the policy environment, which is contributing to a cautious approach among policymakers regarding interest rate changes.
He emphasized that despite the survey indicating a slow return of inflation to normal levels, the economy faces risks of deceleration amid existing imbalances..