U.S. Flash PMI: Robust output and sales growth reported in October as selling prices rise at slowest rate since May 2020
The headline S&P Global Flash US PMI Composite Output Index registered 54.3 in October, up from 54.0 in September, to signal a sustained solid expansion of business activity at the start of the fourth quarter. The latest reading was only marginally below the average recorded over the latest six months, which has witnessed a sustained period of steady robust growth. New orders for goods and services also rose at the sharpest rate for 17 months, reflecting higher sales and stronger demand.
By sector, growth remained uneven in October, characterised by strong service sector growth contrasting with falling manufacturing output.
Service sector activity (output) grew at a marginally increased pace at the start of the fourth quarter, the latest expansion having been exceeded only once over the past two-and-a-half years by that recorded in August. The improvement was driven by the largest rise in new business into the service sector since April 2022, in turn fueled by rising domestic demand, which offset a marginal fall in export orders for services.
Manufacturing output meanwhile fell for a third successive month in October, albeit the rate of decline moderating to the slowest recorded over this period. However, while new orders also fell at a reduced rate, the rate of loss of orders remained steep, with weaker than anticipated sales also often having caused an unplanned rise in unsold stock levels. Inventories of finished goods consequently rose for a fourth successive month, keeping the forward-looking orders-to-inventory ratio at one of the lowest levels seen since the global financial crisis to signal further near-term production weakness.
Looking further ahead, having slumped to a 23-month low in September, optimism about output in the coming year rebounded sharply in October, hitting a 29-month high. The shift in sentiment underscores the unusual volatility of the current business and political environment as the US Presidential Election nears. The boost to confidence in October was often a reflection of hopes that paused spending and deferred decisions ahead of the election will lift once the political situation is clarified. Prospects of lower inflation, lower interest rates and stronger economic growth in 2025 also helped instil greater confidence.
Future optimism struck a 16-month high in the service sector and a nine-month high in manufacturing.
Employment fell for a third straight month in October, though the decline was again only very modest and less than reported in August and September. The drop in payrolls was more pronounced in the manufacturing sector, though even here the drop in headcounts was smaller than reported in September. The decline in service jobs was meanwhile only very modest, and often linked to the non-replacement of leavers rather than layoffs.
October saw average prices charged for goods and services rise at a sharply reduced rate, registering the smallest monthly increase since May 2020. The moderation represented a contrast to the uptick seen in September and pushed the rate of inflation below the pre-pandemic long-run average.
The rate of selling price inflation cooled especially sharply in the service sector, down to its lowest for almost four-and-a-half years, but also fell in manufacturing.
Input cost inflation also slowed, though remained elevated by historical standards, notably in the service sector. Although service sector input cost inflation waned slightly, generally linked to lower wage pressures, it remained the third-highest recorded over the past year and well above the pre-pandemic average.
Manufacturing input cost growth fell to a seven-month low, attributed to lower fuel prices, reduced buying and competition among suppliers.
The S&P Global Flash US Manufacturing PMI rose from 47.3 in September to 47.8 in October, signaling a deterioration in business conditions within the goods-producing sector for a fourth successive month but with the rate of deterioration moderating to the slowest since August.
All five PMI components exerted negative drags on the index bar suppliers’ delivery times, with longer lead-times reported for the first time in three months amid freight-related congestion and weather-related disruptions to supply chains.
The largest negative contribution to the PMI again came from new orders, which fell for a fourth straight month, albeit with the rate of decline easing from September’s 15-month peak, followed by stocks (inventories) of purchases, which fell at the sharpest rate for 14 months to be the only component exerting a more powerful negative drag in the PMI than in September. Production and employment fell at reduced rates.
Commenting on the data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:
“October saw business activity continue to grow at an encouragingly solid pace, sustaining the economic upturn that has been recorded in the year to date into the fourth quarter. The October flash PMI is consistent with GDP growing at an annualized rate of around 2.5%. (…)
Goldman Sachs’Jan Hatzius wore rose colored glasses when reading the flash manufacturing PMI: “The underlying composition was strong, as the output (+0.9pt to 48.8), new orders (+0.6pt to 45.3), and employment (+0.2pt to 48.6) components all increased. The new export orders component increased by 1.5pt to 48.7.”
All of these components actually declined but at a slightly slower rate.
The only positive in manufacturing was that, amid “deteriorating business conditions”, “future optimism struck a nine-month high in manufacturing”, potentially reflecting optimism that things would get better after the elections.
Yet,
- “the rate of loss of orders remained steep”
- “the forward-looking orders-to-inventory ratio at one of the lowest levels seen since the global financial crisis to signal further near-term production weakness.”
- “stocks (inventories) of purchases fell at the sharpest rate for 14 months”
But services are booming (“largest rise in new business into the service sector since April 2022 fueled by rising domestic demand”).
Importantly: “The rate of selling price inflation cooled especially sharply in the service sector, down to its lowest for almost four-and-a-half years.”
And if I am not mistaken, it is the first time in a long, long time that the U.S. PMIs reveal “lower wage pressures”. The September Beige Book also noted “a slowdown in the pace of wage increases”.
Wednesday:
- Eurozone manufacturing production remained in a sustained downturn, falling for the nineteenth month running in October and at a marked pace.
- New orders contracted at a sharper pace.
- New export orders decreased at the joint-fastest pace so far this year, equal with that recorded in September.
- Japan’s manufacturing output and new orders contracted with new orders from abroad falling at the quickest pace since February 2023.
Hint: Chinese demand remains soft.
U.S. Consumers Plan Generous Holiday Spending
Gallup’s initial measure of Americans’ 2024 holiday spending intentions finds consumers planning to spend an average of $1,014 on Christmas or other holiday gifts. This is substantially more than their forecast of $923 at the same time last year, signaling that the 2024 holiday shopping season could be a bit kinder to U.S. retailers. (…)
The majority of Americans almost always say they will spend the same amount as the prior year, and that’s the case in the latest poll. However, today’s 52% saying their spending will be the same is below the long-term average of 60%, while the 20% saying they will spend more is significantly higher than the average of 14%. Meanwhile, the 25% saying they will spend less is on par with prior years. (…)
“A bit kinder”? That would be a 9.9% jump in average holiday spending!