The initial value of the US August Markit Manufacturing PMI fell well short of expectations, with the contraction rate reaching the fastest this year, mainly due to further weakness in production, orders, and factory employment. The Services PMI, however, was better than expected, with the price index for service providers falling to the lowest level since the beginning of the year.
On Thursday, August 22, according to the data released by S&P Global, the preliminary value of the Markit Manufacturing PMI in the USA for August was lower than expected, with the contraction rate being the fastest this year, primarily due to further weaknesses in production, orders, and factory employment. The PMI for the service sector, on the other hand, was better than expected, with the price index for service providers falling to its lowest level since the beginning of this year. 50 is the dividing line between expansion and contraction.
The preliminary value of the Markit Manufacturing PMI in the USA for August was 48, hitting an eight-month low, lower than the expected 49.5. This reading is below the economists' estimate from all surveys conducted by the media, and the previous value in July was 49.6.
All five sub-indices of the Manufacturing PMI showed weakness.
The contraction in output was the largest in 14 months, with consecutive contraction in orders for the second month and almost stagnant employment. The finished goods inventory for manufacturers increased for the third consecutive month in the past four months, indicating increased risks for manufacturers to reduce production in the face of declining orders.
The preliminary value of the Markit Services PMI in the USA for August was 55.2, marking the 19th consecutive month of expansion, higher than the expected 54, and the previous value was 55.
The preliminary value of the Business Activity Index for the USA services sector was 55.2, reaching a two-month high. The pace of new business growth was slightly faster.
The price index fell from 53.6 in July to 52.8, the lowest reading since January 2024.
The employment index fell from the previous month, marking the lowest reading since April 2024.
Related companies are more optimistic about the output in the coming year as they expect a decrease in interest rates and inflation.
The preliminary value of the U.S. August Markit Composite PMI was 54.1, the lowest since April this year, with an expected value of 53.2 and a previous value of 54.3.
The employment index dropped from 51.6 in July to 48.9, marking the lowest reading since April 2024.
Output prices fell from the previous month, marking the lowest reading since January 2024.
The uncertainty of the November U.S. presidential election and concerns about demand prospects, especially in the manufacturing sector, have dampened market sentiment.
Analysts state that the PMI data indicates a stagnation in manufacturing, but service sector activities are steadily expanding, indicating the overall good health of the largest component of the U.S. economy.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated in a release:
The steady growth in August indicates a strong third-quarter GDP in the United States, with an annual growth rate of over 2%, which should help alleviate concerns about an economic recession in the near term. Similarly, the decline in the sales price inflation rate to near pre-COVID-19 levels suggests a normalization of inflation and provides reasons for interest rate cuts.
However, when you delve into the detailed numbers of individual segments and not just look at headline figures, this scenario of a soft landing looks less convincing. Typically, the manufacturing sector, which leads the economic cycle, is in decline while economic growth becomes increasingly reliant on the service sector. The forward-looking ratio of manufacturing orders to inventories has fallen to one of the lowest levels since the global financial crisis.
At the same time, the growth of the service sector is constrained by recruitment difficulties, which continues to push up wage rates, meaning that overall input cost inflation remains higher than historical standards.
Therefore, the policy situation is complex, and it is easy to understand why policymakers are cautious about interest rate cuts.
However, the key conclusion of the survey is that inflation continues to gradually fall back to normal levels, and the US economy has certain imbalances and is facing risks of slowdown.
After the preliminary release of the US PMI in August, the US dollar index saw a short-term rise, while US stocks experienced a short-term decline:
The US dollar index rose by nearly 10 points in the short term, reaching 101.45.
US stocks saw a short-term decline, with the NASDAQ's gains narrowing to 0.3%.
Short-term volatility in the US 10-year treasury notes yield has risen to 3.849%.
Spot gold has experienced minimal short-term fluctuations and is priced at $2486.24 per ounce.