The Institute for Supply
Management‘s (ISM) monthly sentiment survey of U.S. manufacturers reflected faster
contraction in the sector during October. The
Concurrent activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- decelerated (-1.8PP, to 51.8%). Exports (-14.9PP), imports (+9.4PP), inventories (-4.7PP), and business activity (-4.7PP) exhibited the largest changes.
Of
the industries we track, only Construction expanded. Respondent comments included
the following --
Construction. “Strength in certain construction sectors is leading
to continued optimism. Construction equipment and materials are generally at
lower prices and with faster deliveries. However, this is not the case for all
materials or equipment; some prices remain high and with long lead (times).”
Changes
in S&P Global‘s headline
index values both rose, albeit marginally. Details from S&P Global’s
surveys follow --
Manufacturing. US manufacturing conditions stabilize amid renewed
rise in new orders.
Key findings:
- Output expansion quickens as sales return to growth
- First fall in employment since July 2020
- Inflationary pressures strengthen
Services. Stronger expansion in output, but demand remains
fragile. Inflationary pressures at three-year low.
Key findings:
- Greater employment supports faster upturn in activity
- New orders continue to fall
- Slowest rises in input prices and output charges for three years
Manufacturing. “October PMI data signaled a stabilization of US
manufacturing conditions amid a renewed rise in new order inflows and firmer
output growth,” wrote Siân
Jones, Principal Economist at S&P Global Market Intelligence. “Demand
conditions reportedly showed signs of improvement as customer interest revived,
but this was once again largely focused on the domestic market as new export
orders fell at a quicker rate.
“Of
concern were reports of dwindling backlogs of work, previously used to help
support production, as firms also revised down their expectations for future
output to the lowest in 2023 so far. At the same time, manufacturers cut
employment for the first time in over three years as workloads were reportedly
insufficient to warrant additional hiring or the replacement of voluntary
leavers.
“On
the price front, manufacturers saw sharper increases in costs and output
charges, as inflation regained some momentum in the sector. Higher oil and
oil-derived input prices again spurred hikes, as rates of inflation accelerated
for the third month running.”
Services. “The PMI survey paints a far more subdued picture of
US economic health than the latest bumper GDP numbers, with October seeing very
muted growth of business activity for a third successive month,” wrote Chris
Williamson, Chief Business Economist at S&P Global Market Intelligence.
“A summer surge in service sector activity, fueled by rising consumer spending,
has stalled. Manufacturing is meanwhile also struggling to regain momentum amid
weak global demand. As such, the survey data are broadly consistent with GDP
rising at an annual rate of around 1.5%.
“An
upside to the weak demand environment is the further cooling of price pressures
in October, which brings the Fed’s 2% target into focus for the first time in
three years.
“The
brighter outlook for inflation and hopes of a commensurate peaking of interest
rates have helped lift business confidence in year-ahead prospects, but new
business inflows need to pick up in both services as well as manufacturing to
ensure robust growth can be sustained as we head towards the end of the year.”
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.
