‘Soft Landing Scenario Less Convincing’: US Manufacturing PMI Plunges To 8-Mo Lows

S&P Global’s Flash PMI data for August signals the continued divergence between US manufacturing (slump) and Services (survive).

• Flash US Services Business Activity Index at 55.2 (July: 55.0) – 2-month high.

• Flash US Manufacturing Output Index at 47.8 (July: 50.5) – 14-month low.

• Flash US Manufacturing PMI at 48.0 (July: 49.6) – 8-month low.

And all that as ‘hard’ macro data is collapsing…

Source: Bloomberg

Commenting on the data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

“The solid growth picture in August points to robust GDP growth in excess of 2% annualized in the third quarter, which should help allay near-term recession fears. Similarly, the fall in selling price inflation to a level close to the pre-pandemic average signals a ‘normalization’ of inflation and adds to the case for lower interest rates.

“This ‘soft-landing’ scenario looks less convincing, however, when you scratch beneath the surface of the headline numbers. Growth has become increasingly dependent on the service sector as manufacturing, which often leads the economic cycle, has fallen into decline. The manufacturing sector’s forward-looking orders-to-inventory ratio has fallen to one of the lowest levels since the global financial crisis.

“At the same time, service sector growth is constrained by hiring difficulties, which continue to push up pay rates and means overall input cost inflation remains elevated by historical standards.

“The policy picture is therefore complicated, and hence it’s easy to see why policymakers are taking a cautious approach to cutting interest rates. However, on balance the key takeaways from the survey are that inflation is continuing to slowly return to normal levels and that the economy is at risk of slowing amid imbalances.”

Finally, as the chart at the top shows, we’ve seen this kind of divergence before and it did not end well for Services.