In July, the US private sector experienced significant output growth, reaching its peak level since April 2022, predominantly driven by the service sector. However, the outlook for the next year has deteriorated to a three-month low, as indicated by the flash purchasing managers' index (PMI) released by S&P Global ($SPGI) on Wednesday.
The composite output index increased to 55 this month, up from 54.8 in June, surpassing the Bloomberg survey's consensus of 54.2. This index, which separates expansion from contraction at the 50-point mark, reflects a continuing trend of output growth that has persisted for the past 1.5 years. S&P Global noted that the growth rate has notably improved in recent months, having slowed down in April.
The service sector, in particular, reported a dramatic rise, with output reaching a 28-month high of 56 in July, up from 55.3 the previous month. In contrast, the manufacturing PMI took a downturn, plummeting to 49.5—its lowest level in seven months—from 51.6. This drop was unexpected, as Wall Street had anticipated figures of 54.9 for the service sector and 51.6 for manufacturing.
"The flash PMI data signal a 'Goldilocks' scenario at the start of the third quarter, with the economy expanding robustly while inflation stabilizes," stated Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. However, he cautioned that the growth is becoming increasingly disproportionate, with manufacturing slipping back into contraction as the service sector strengthens further.
The manufacturing sector is facing declines across multiple fronts, from new orders and production to inventories. The report highlights that average prices charged for goods and services are rising at the slowest pace since January and the second-slowest pace since October 2020. Notably, while some inflationary pressures linger in the service sector, prices charged for services increased on average at the slowest rate seen in nearly four years, except for a brief decrease in January.
Furthermore, the job market showed positive signs with an uptick in employment for the second consecutive month in July; however, both sectors experienced a deceleration in payroll growth compared to the prior month. Over the next year, optimism regarding output has waned, falling to a three-month low.
The uncertainty surrounding the upcoming presidential election and associated policies has adversely affected sentiment, alongside concerns regarding the persistent high cost of living, which is closely tied to inflation and interest rates, according to S&P Global. Over the weekend, US President Joe Biden announced his withdrawal from the presidential race, endorsing Vice President Kamala Harris as the Democratic Party's nominee for president.
.