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FLASH PMIs
USA: Output growth accelerates in July, prices rise at slower rate
The headline S&P Global Flash US PMI Composite Output Index rose from 54.8 in June to 55.0 in July, its highest since April 2022. Output has now risen continually over the past one-and-a-half-years, with the pace of expansion having improved markedly in recent months after slowing in April.
The service sector outperformed manufacturing for a fourth straight month, with the sectoral divergence widening to the greatest since June of last year. While the service sector expanded in July at the strongest rate since March 2022, manufacturing output fell into decline for the first time since January.
Sector variances were also marked in terms of order book growth. Measured overall, inflows of new work rose at a slightly reduced rate, caused by a renewed fall in new orders at manufacturers. However, the overall rise was the second largest seen over the past 13 months thanks to faster inflows of new business placed at service providers, which rose at the sharpest rate for just over a year.
Optimism about output in the year ahead slipped to a three-month low in July, dropping further below the survey’s long-run average. Sentiment was adversely affected by uncertainty regarding the Presidential Election and resulting policies, though companies also cited concerns over the persistent high cost of living in relation to both inflation and interest rates. These concerns were more evident in the service sector than manufacturing, with the latter in fact reporting a pick-up in sentiment from June’s 19-month low, often linked to the expansion of capacity and the anticipation of demand improving over the coming year, especially after the election.
Employment rose for a second successive month, pointing to a further modest labor market improvement after headcounts fell briefly in the two months to May. Manufacturers reported the stronger rate of increase, though both sectors reported weaker payroll gains than in June.
The rise in employment helped firms reduce their backlogs of work marginally, notably in manufacturing.
Average prices charged for goods and services rose at the slowest rate since January, and the second-slowest rate since October 2020. While some stubbornness of inflation was still evident in the service sector, prices charged for services rose on average at the slowest rate for almost four years barring only January’s brief dip in the rate of inflation. Prices charged for goods leaving the factory gate meanwhile rose only very modestly, increasing at the slowest rate for a year, adding to the disinflationary trend.
The slower rise in charges occurred despite upward pressure on input price inflation. Average costs across manufacturing and services rose at the sharpest rate for four months, rising in both sectors at increased rates.
Firms reported higher prices for a wide variety of raw materials, with energy and logistics prices also on the rise, the latter caused in part by increased freight and shipping rates. However, higher wage pressures also remained a dominant factor behind price hikes, especially in the service sector.
The S&P Global Flash US Manufacturing PMI fell from 51.6 in June to 49.5 in July, signaling a deterioration in business conditions within the goods-producing sector for the first time since December.
Falls in new orders, production and inventories contributed to the decline in the PMI, the former dropping especially sharply. A reduced rate of employment growth also acted as a drag on the PMI. Suppliers’ delivery times meanwhile lengthened marginally, acting as a positive influence on the PMI for a second month running, though the lengthening was only very marginal.
Manufacturing a bit softer in July but services more than offsetting.
Eurozone economic recovery fades further in July
Provisional PMI® survey data signalled a near-stagnation of the eurozone private sector during July as the currency bloc’s economic recovery continued to wane. New orders fell for the second month running and business confidence dropped to a six-month low, leading firms to halt a spell of hiring which began at the start of 2024. Meanwhile, the rate of input cost inflation quickened, but demand weakness meant that companies raised their selling prices at a softer pace. In fact, the pace of charge inflation was the slowest since last October.
The eurozone manufacturing sector was again a key source of weakness. Production was down markedly in July, and to the largest extent in the year-to-date. As such, a rise in services activity stopped the overall private sector from falling into contraction. That said, the expansion in the service sector was only modest and the weakest since March.
The two largest euro area economies continued to underperform the wider region. Output in Germany decreased for the first time in four months, while France posted a third consecutive monthly reduction in business activity. This performance contrasted with continued growth across the rest of the euro area, albeit the latest increase in output was the least marked since January.
The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, fell to 50.1 in July from 50.9 in June, posting only fractionally above the no-change mark and thus pointing to a near-stagnation of private sector activity. Output has now risen in each of the past five months, but the latest expansion was the softest in this sequence and thus represents a weak start to the third quarter of the year. (…)
The near-stagnation of business activity reflected further signs of weakness in demand. New orders decreased for the second month running in July. The pace of reduction quickened slightly from that seen in June, but remained only modest nonetheless. As was the case with output, growth in services new business contrasted with a fall in manufacturing new business, but here the modest expansion in services was insufficient to offset the steepest fall in manufacturing new orders since December.
New export orders (which include intra-eurozone trade) fell more quickly than total new business as firms in the eurozone continued to struggle to secure sales from international clients. New export orders decreased for the twenty-ninth successive month, and at a solid pace that was fractionally quicker than that registered in the previous survey period.
Input prices increased sharply again in July, with the pace of inflation ticking up to a three-month high. The latest rise was also sharper than the series average. Cost pressures continued to be more pronounced in the service sector than in manufacturing, with services input prices up substantially in the latest survey period. That said, manufacturing cost inflation also picked up and was the fastest for a year-and-a-half.
While the pace of cost inflation quickened in July, output prices increased at a softer pace as falling demand limited company pricing power. Charges rose at a modest pace that was the slowest since last October. Selling prices increased in the service sector, but continued to fall modestly in manufacturing. Rates of charge inflation were broadly similar across Germany, France and the rest of the eurozone.
JAPAN: Business Activity returns to growth in July
