The US economy is softening along with the global economy, no surprise with aggressive moves by central banks raising rates. S&P Global’s flash (prelim) US PMI Composite Output Index for June came in lower at 53.0 down from May’s 54.3 and at a 3-month low. We have been operating with manufacturing weakening and services strengthening, this month they both came off. The manufacturing PMI fell to 46.3 in the preliminary reading for June from 48.4 in the prior reading. The PMI reading fell to 54.1 in the preliminary reading for June from 54.9 in the prior reading.
Factory activity continues to be hit by interest rates, supply constraints and wage inflation. Economic data released this morning fit with the global trend.
US S&P Global Manufacturing June 2023 Highlights
- Flash US PMI Composite Output Index at 53.0 (exp 53.5; prev 54.3) 3-month low.
- Flash US Manufacturing PMI at 46.3 (exp 48.5; prev 48.4) 6-month low.
- Flash US Services Business Activity Index at 54.1 (exp 54.0; prev 54.9) 2-month low.
- Flash US Manufacturing Output Index at 46.9 (May: 51.0). 5-month low.
- Factory production fell at the steepest rate since January.
- Robust growth continued to be recorded in the service sector, albeit with the rate of expansion cooling from May’s 13-month high
- Jobs growth sank to the slowest since January.
- Although higher wages added to firms’ costs, selling price, inflation for goods and services hit a 32-month low.
- Data were collected 12-22 June 2023.
A number above 50.0% is indicative of expansion.
New orders
- Further rise in new orders at firms, softer than May, remained solid and was second-fastest in just over a year.
- The upturn entirely driven by service providers, as manufacturers reported the sharpest drop in new orders since December, citing weak customer confidence and destocking by clients.
- Service sector firms noted that strong demand conditions and referrals contributed to growth of new business, which rose at a rate only marginally below May’s 13-month peak.
Input prices
- The pace at which input prices fell was the quickest since May 2020.
- The pace of selling price inflation was only fractional and slowest in the current sequence of inflation that began just over three years ago.
- Weighing on firms’ ability to hike prices was weak demand and efforts to stay competitive.
- In line with subdued demand, firms sought to run down their stocks and reduce input purchasing in June.
- Input buying fell at the steepest rate since January, and both pre- and post-production inventories declined sharply
Employment
- Greater success in finding suitable candidates allowed firms to expand their workforce numbers in June, despite concerns surrounding future demand conditions.
- The rate of job creation slowed slightly but remained among fastest in a year.
- Increased employment and lower new orders led to a substantial decline in backlogs of work.
Commenting on the US flash PMI data, Chris Williamson, Chief Business Economist at S&P Global
Market Intelligence said:
“The overall rate of expansion of business activity in the US remained robust in June, consistent with GDP rising at a rate of 1.7% to put second quarter growth in the region of 2%.
“Growth remains dependent on service sector spending, however, with manufacturing slipping back into decline after three months of growth. While improving supply conditions had helped boost manufacturing production in prior months, an increasingly severe downturn in new orders mean factories are running out of work.
“The situation is brighter in the service sector, where demand is proving resilient and the recent pause in rate hikes appears to have helped boost business optimism for the year ahead.
“The question remains as to how resilient service sector growth can be in the face of the manufacturing decline and the lagged effect of prior rate hikes. Any further rate hikes will of course have a further dampening effect on this sector which is especially susceptible to changes in borrowing costs.
“The tightness of the labor market remains a concern, and upward wage pressure remains a key driver of higher costs in the service sector. However, it is encouraging to see the overall rate of selling price inflation for goods and services drop to the lowest since late 2020 in a sign that the Fed is winning its fight against inflation.”
Global Composite PMI for 2022
Source: S&P Global
From The TradersCommunity News Desk