S&P released its Services Purchasing Managers Index data for the month of September and it's clear to see that the services industry is currently quite a bit healthier than manufacturing. S&P wrote in their report, “The seasonally adjusted S&P Global US Services PMI® Business Activity Index posted 55.2 in September, down from 55.7 in August but still signaling a marked monthly increase in service sector output at the end of the third quarter, and one that was among the strongest in the past two-and-a-half years. Services activity has now increased in each of the past 20 months. The latest rise was often linked to success in securing new work, while there were a number of reports that the recent reduction in interest rates had boosted demand in the service sector. A boost from lower interest rates was also mentioned by those companies that saw new orders increase in September as clients became more willing to commit to new projects.”
Any reading over 50 indicates that the PMI is in an “expansion” stage, as we can see we are seeing small but solid growth in the services PMI. This is in contrast to manufacturing PMI which was a few points below the 50 level and is currently in a state of “contraction", and has been for several months.
S&P also releases a “composite PMI” that tracks both services and manufacturing PMI together. The composite index came in at 54.0 in September, down from 54.6 in August but still holding above the 50 level, indicating growth and expansion. Services PMI is clearly holding up the composite as manufacturing PMI continues to struggle. Chris Williamson, Chief Economist at S&P Global, said in the report, "The upturn has also become increasingly uneven, with growth wholly dependent on the service sector as manufacturing has slipped deeper into a decline in September. This factory malaise is showing some signs of spilling over to the service sector, subduing growth in particular for industrial services.”
In their report, S&P also offered some analysis as to why consumer sentiment is decreasing for the economy. “Despite marked expansions of both activity and new business, confidence in the year-ahead outlook dropped sharply during September and was the lowest since October 2022. While lower interest rates and an expected improvement in demand following the Presidential Election supported optimism, sentiment waned amid concerns about a potential slowdown in the economy” Chirs Williamson added, "It therefore remains to be seen how the Presidential Election will affect growth, and the extent to which lower interest rates might help revive struggling sectors such as industrial goods and services. Clearly there are both upside and downside risks to growth… Meanwhile, the inflation signals from the survey point to reviving price pressures, principally linked to stubbornly elevated wage growth, which could temper the Fed's enthusiasm for further aggressive rate cutting."
Another services report that was released was the Institute of Supply Management’s survey of service businesses. The index was at 54.9% in September, up from 51.5% in August. Any reading over 50% is a positive indicator. ISM’s survey for manufacturing businesses has had six straight months of negative (below 50%) readings, and has been in contraction every month this year except March. High interest rates have held manufacturing down for about a year now. Jeffry Bartash of MarketWatch gives his thoughts on these readings and the future, “The services side of the economy has powered the economy for the past few years. And it’s still doing so despite the strain of high interest rates and a surge in inflation over the past few years. The good news is the annual rate of inflation has returned close to low pre pandemic levels and the Federal Reserve is cutting interest rates. Lower borrowing costs could boost sales, encourage more hiring and spur the economy.”
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