US private-sector output growth fell to a two-month low in September amidst ongoing weaknesses in manufacturing. The recent flash purchasing managers' index released by S&P Global highlights a significant shift in economic sentiment. The composite output index decreased to 54.4 this month, a decline from 54.6 in August, aligning closely with the 54.3 consensus from a survey conducted by Bloomberg.
The 50-point threshold signifies the dividing line between economic expansion and contraction, and September concluded the "strongest quarter" since the first quarter of 2022, as noted by S&P Global. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, remarked, "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." He further indicated that an acceleration of inflation is suggested, hinting at the Federal Reserve's need to maintain focus on its inflation targets while supporting economic growth. On Wednesday, the Federal Reserve's monetary policy committee made a notable decision to lower its benchmark lending rate by 50 basis points, marking their first rate cut since March 2020.
This decision represents a shift in monetary policy as the Federal Open Market Committee adjusted their median federal funds rate outlooks for 2024 through 2026. The manufacturing Purchasing Managers' Index (PMI) fell to a 15-month low of 47 in September from 47.9 the previous month. Service sector output also recorded a decline, dropping to a two-month low of 55.4 compared to 55.7.
These figures were below Wall Street's expectations of 48.6 and 55.2, respectively. A key factor contributing to the decrease in the manufacturing PMI was the steep decline in new orders, which fell at the fastest pace since December 2022. Furthermore, employment growth slowed to levels not seen since June 2020, as outlined in the report. Overall private-sector employment faced a decline for the second consecutive month in September, marking a drop in four out of the last six months, according to S&P Global’s findings.
Despite this, the overall decline in jobs was less severe than in the previous month, with fewer job losses in the services sector. Looking ahead, optimism regarding output over the next year has reached its lowest point since October 2022. The service sector has been instrumental in this decline in confidence, driven by concerns over economic prospects and demand, frequently tied to the uncertainty surrounding the upcoming US presidential election in November. Williamson noted, "The survey's price gauges, meanwhile, serve as a warning that, despite the PMI indicating a further deterioration of the hiring trend in September, the FOMC may need to move cautiously in implementing further rate cuts.".