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Macro Flash Report

S&P Global US Flash PMI

Takeaway:

Preliminary S&P Global manufacturing & services PMI data disappointed this week and could be pointed to as one of the reasons for last week’s jumbo rate cut. While the effects will not be immediate, the anticipated swift reduction in interest rates is going to have an outsized benefit on an industrial sector that is coming off 2 years of suppressed activity.

S&P Global US Manufacturing (solid) & Services (dotted) PMIs

For preliminary September results, the S&P Global US Manufacturing PMI dropped to 47 from 47.9 in August, missing market expectations of a rise to 48.5. This marks the third consecutive month of contraction and the steepest decline since June 2023.

  • New Orders: Dropped at the fastest pace since December 2022, the main driver of this downturn, indicating a significant demand slowdown.
  • Production: Declined for the second consecutive month, as a result, accompanied by reduced input demand and shorter delivery times, suggesting excess supply chain capacity.
  • Employment: Registered the largest job cuts since June 2020 as manufacturers adjusted to weaker sales/reduced capacity needs.
  • Input Costs: Eased to a six-month low, supported by lower energy prices and diminishing supply chain pressures.

The S&P Global Flash US Composite PMI dipped slightly to 54.4 from 54.6 in August, above market expectations of 54.3, continuing to be in expansion yet a two-month low. This indicates robust business activity growth over the third quarter, with only a small loss of momentum evident as growth disparities persisted.

  • Sectors: Services continued strong growth, albeit at a slower pace, contrasting with deepening manufacturing contraction.
  • Business Confidence: Fell to its lowest level since October 2022, primarily due to service sector concerns about economic outlook and demand.
  • Prices: Inflation for goods and services hit the fastest pace since March, driven by the highest input cost increases in a year.

The S&P Global US Services PMI edged down to 55.4 in from 55.7 in August, slightly exceeding expectations of 55.3. Despite this dip, a two-month low, the service sector posted its strongest quarterly performance since early 2022.

  • New Business: Remained robust, just below August’s 27- month high, with accelerated export orders.
  • Backlogs: Saw only modest increases, indicating limited spare capacity.
  • Employment: Continued to decline, though at a slower rate, as businesses struggled with staffing amid economic uncertainty.
  • Selling Prices: Inflation rose to a six-month high, surpassing pre-pandemic levels, largely driven by wage pressures.