Flash U.S. Services and Manufacturing Purchasing Managers Index numbers were just released and they give a positive outlook for growth in the fourth quarter of this calendar year. These reports are called “flash” because they only take into account about 85% of the surveys that go into the regular PMI reports and they are reported before total PMI, giving a preliminary view of the direction that those reports are heading in. They are a snapshot of economic conditions. These reports are important at this time because although services and manufacturing are growing when combined, it is actually services that have been doing all the expanding while the manufacturing sector has been struggling for several months. It will be important to look at these figures and the complete PMI readings that will come out later to see if manufacturing can recover or if it will continue to slip.
The following are the “Key findings” from S&P Global’s PMI report:
- Flash US PMI Composite Output Index(1) at 54.3 (September: 54.0). 2-month high.
- Flash US Services Business Activity Index(2) at 55.3 (September: 55.2). 2-month high.
- Flash US Manufacturing Output Index(4) at 48.8 (September: 47.9). 3-month high.
- Flash US Manufacturing PMI(3) at 47.8 (September: 47.3). 2-month high.
The flash services PMI increased by 0.1 in October to 55.3. 50 is the benchmark level for PMI, numbers above 50 indicate growth and expansion while numbers below 50 indicate decay and contraction. Numbers over 55 are considered to be remarkably strong. The services sector makes up a much larger portion of economic activity than the manufacturing sector, which is why the composite index has been strong even with a struggling manufacturing industry. Flash manufacturing PMI not only stayed in negative territory (below 50), but decreased for the third month in a row. High interest rates in recent years have increased manufacturing costs, causing the manufacturing sector to be sluggish. The Fed began cutting rates in September and will hopefully continue to do so, this should increase manufacturing activity and output in 2025. Until then, the services industry is having to pick up a lot of slack from the manufacturing sector. S&P Global wrote in their release, “October’s flash US PMI® survey signalled a further solid rise in business activity to mark a robust start to the fourth quarter. Growth was driven solely by the service sector, however, as manufacturing output contracted for a third month running. Meanwhile, employment fell slightly for a third successive month amid uncertainty ahead of the Presidential Election.”
Although it was practically all because of the services sector, the flash composite index rose in October from 54.0 to 54.3. The composite index takes into account the changes in both services and manufacturing PMI and weights them into a single indicator. In their report, S&P global contrasted the changes in manufacturing and services in the context of the composite index, “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… 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.” Although it's good that manufacturing is decreasing at a slower rate than we have seen in a while, it still has a long way to go before it will begin helping the services industry in bolstering economic growth.
As a part of their report, S&P Global offered commentary on changes in employment and prices for October. October’s data for employment and prices were rather positive and even helped to increase future sentiment readings. Employment did fall again in October but at a smaller rate than August and September. October price increases were the smallest since May of 2020, this is great news following September’s decently large increase in prices. S&P reported that future sentiment readings rebounded to a 29-month high in October, indicating that consumers are optimistic about the way our current economic situation will unfold in 2025.
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