September 27, 2023
S&P Global Flash US Composite PMI™
Further loss of service sector momentum weighs on overall US economic performance
US businesses signalled a broad stagnation in output at the end of the third quarter as manufacturers and service providers alike indicated muted demand conditions. September data indicated the worst performance across the private sector since February, as the service economy lost further momentum. New orders fell at the strongest pace this year so far as demand for services slipped further into contractionary territory. Manufacturers also saw a drop in new sales, albeit at a slightly softer pace. Cost pressures ticked higher again, as input prices rose at a marked pace. Nonetheless, the rate of cost inflation was much softer than those seen on average throughout the last three years. Firms continued to pass through higher costs to clients, but weak client interest stymied their ability to hike selling prices as the pace of increase matched that seen in August.
Output and demand The headline S&P Global Flash US PMI Composite Output Index posted 50.1 in September, down fractionally from 50.2 in August, to signal a broad stagnation in activity across the private sector. The headline index reading fell for the fourth successive month and indicated the weakest overall performance since February. Although manufacturing firms continued to register a decline in production, the pace of decrease softened from August and was only slight overall. Driving the slowdown was the service sector, where firms recorded the slowest rise in business activity in the current eight-month sequence of growth. Companies often noted that high interest rates and inflationary pressure led to weak client demand which weighed on overall output. Some also mentioned cancellations of customer orders as market conditions worsened. Subsequently, the subdued demand environment sparked a faster decline in new business in September.
The rate of contraction was the sharpest since December 2022, with service providers leading the downturn. Service sector firms saw a solid decrease in new business, following pressure on customer purchasing power from high inflation and interest rate hikes. Manufacturers recorded a further drop in new orders, albeit the slowest in the current five-month sequence of decline.
At the same time, a renewed fall in service sector new export orders led to another marginal decrease in total foreign client demand. Higher prices charged for exported goods and recession concerns in key export markets in Europe reportedly dragged on external demand.
Business confidence across the US private sector dipped to a nine-month low at the end of the third quarter. Despite still expecting output to increase over the coming 12 months, the degree of optimism was weaker than the series average as strikes, inflation, higher borrowing costs and muted demand conditions dampened expectations. Manufacturers expressed greater positive sentiment amid improving supply chains and increased investment in marketing. However, service providers were at their least optimistic in 2023 so far as strain on disposable incomes worsened.
Source: S&P Global Flash US Composite PMI™
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