In August, US PMI Manufacturing dropped to 48.0, the lowest in eight months, down from 49.6 in July. In contrast, PMI Services index showed a slight increase, rising from 55.0 to 55.2. PMI Composite index also declined, falling from 54.3 to 54.1, a four-month low.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that while the solid growth in August points to GDP growth rate of over 2% annualized for Q3, this doesn’t fully dispel concerns about the economy.
The manufacturing sector’s decline is particularly worrying, as it typically leads the economic cycle. The orders-to-inventory ratio for manufacturing has fallen to one of its lowest points since the global financial crisis, indicating potential future challenges.
Williamson also highlighted that the service sector, while still growing, is facing constraints due to hiring difficulties, which are driving up wages and keeping input cost inflation high by historical standards.
These dynamics suggest a complicated policy environment for Fed, as inflation is gradually normalizing, but the economy faces risks from the imbalances between a weakening manufacturing sector and a constrained services sector.
