U.S. PMI- Services continue to outpace Manufacturing; Inflationary pressures reemerge

The S&P Global Flash US PMI data for September 2024 indicates that business activity in the United States remained robust, driven primarily by the service sector. The Composite PMI Output Index registered 54.4, slightly down from 54.6 in August, marking a two-month low. Despite the slight decline, this figure reflects continued economic expansion, making it the strongest quarter since early 2022.

In the service sector, the Business Activity Index came in at 55.4, also a two-month low, down from 55.7 in August. The services sector continues to be the primary driver of growth, maintaining a solid pace of expansion. On the other hand, the Manufacturing PMI dropped to 47.0 from 47.9 in August, signaling the steepest deterioration in manufacturing business conditions since June 2023. Manufacturing output, however, showed a slight improvement, with the Output Index rising to 48.9 from 48.2.

One notable trend is the widening disparity between the manufacturing and services sectors. While new orders in the service sector continued to grow robustly, manufacturing saw a sharp decline in new orders, the fastest in 21 months. This divergence is also evident in export orders, with services experiencing increased demand while manufacturing export orders fell at an accelerated pace.

Inflationary pressures reemerged in September, with prices charged for goods and services rising at the fastest rate in six months. The acceleration in inflation was particularly notable in the service sector, where input cost inflation reached a one-year high, largely driven by wage growth. In contrast, manufacturing input cost inflation cooled, benefiting from lower energy prices and reduced supply chain pressures.

The employment landscape showed mixed signals, with overall employment declining for the second consecutive month, although at a more modest pace than in August. The manufacturing sector, in particular, saw significant job cuts, with payroll reductions at the steepest rate since June 2020, excluding the pandemic period. This contrasts with the service sector, where the decline in jobs was linked to difficulties in replacing staff rather than outright job cuts.

Overall, the US economy continues to grow, supported by a strong service sector, but manufacturing is under pressure. Inflation is picking up again, raising concerns that the Federal Reserve may need to tread carefully with further rate cuts. The survey also highlights growing uncertainty among businesses, particularly in the service sector, as the upcoming Presidential Election looms large, dampening business confidence and outlook for the year ahead.