Hi Yves. Please note that this PMI data merely reflects the current trajectory. There are other factors driving inflation, such as strikes at US East Coast ports and rising oil prices due to escalating fighting in the Middle East.
Wolf Richter, editor Wolf Street. Originally Wolf Street
Underlying inflation trends are picking up steam after cooling off considerably. Today, preliminary S&P US composite PMI figures, based on data collected from September 12-20, showed a re-acceleration in selling price inflation in both the services and manufacturing sectors, as well as input cost inflation in the services sector, raising several warnings about upcoming Fed rate cuts.
The PMI price reading serves as a “warning” that “the FOMC may need to tread carefully in implementing further rate cuts,” the report said. Consumer Price Index (CPI) inflation accelerates again for second consecutive month.
Overall, “business activity growth remained strong in September,” the PMI report said. The flash composite PMI, which combines the services and manufacturing PMIs, was 54.4 in September, indicating strong growth (above 50 = month-on-month increase). July and August also showed strong growth, making September “the final quarter of the strongest since the first three months of 2022.”
The composite PMI was driven by strong growth in the services sector, which accounts for the majority of the economy, and a “moderate decline in output” in the manufacturing sector.
The gap between the service and manufacturing sectors continues
S&P’s preliminary August Services PMI was 55.4, growing at a “solid pace” and recording the “second-highest rate of growth in the past 29 months.” The Services PMI has shown roughly the same solid growth rate for the past five months. Services make up a large portion of the economy and are the driving force behind it.
Manufacturing, a much smaller part of the economy and employment, has been slowing from its phenomenal gains during the pandemic: The flash manufacturing PMI fell “slightly” in September to a 15-month low of 47 (a reading below 50 indicates a month-on-month decline).
Inflation trends prompt Fed to warn of rate cuts
“Prices of both goods and services are rising at their fastest pace in six months, and input costs in the services sector, which primarily comprise wages and salaries, are rising at their fastest pace in the past year,” the report said.
“The re-accelerating inflation suggests that the Fed cannot fully shift its focus from its inflation target as it seeks to sustain the economic recovery,” the report said.
“Meanwhile, the survey’s price readings serve as a warning that the FOMC may need to tread carefully in implementing further rate cuts, even as the PMIs point to a further deterioration in employment trends in September,” the report said.
Selling prices rise in both services and manufacturing“Sales prices increased at the fastest pace in six months, driven by rising input costs that reached their highest level in a year,” the company said.
“The acceleration in sales price inflation was shared by goods (manufacturing) and services, both of which reached their highest levels in six months,” it said. “Both are above their long-term pre-pandemic averages, indicating rising rates of increase.”
Input cost inflation: The divergence between services and manufacturing“Services sector input cost growth reached a 12-month high, notably in conjunction with reported wage increases,” the report said.
“The rate increases are driven by rising costs, with input costs rising at the fastest pace in a year in September,” it said, “often linked to the need to increase staff wages.”
“In contrast, growth in manufacturing input costs slowed to the lowest in six months due to lower energy prices and reduced supply chain pricing pressures,” the report said.
How PMI worksThey are based on research from a panel of business executives who are surveyed monthly.
A value = 50 means that this month there was no change from last month, i.e. the number of respondents who said there was an increase equals the number who said there was a decrease, and the rest said there was no change.
A value greater than 50 means that more respondents said there was an increase this month compared to last month than there was a decrease, and the rest said there was no change.
Conversely, a value below 50 means a decrease. The distance from 50 indicates the pace of growth or contraction this month compared to the previous month.
