Demand Weakness Weighs On private sector business activity in November

The S&P Global Flash US Composite PMI™ shows an escalation in private sector demand weakness. 

Key Findings

• Flash US PMI Composite Output Index at 46.3 (October: 48.2). 3-month low.
• Flash US Services Business Activity Index at 46.1 (October: 47.8). 3-month low.
• Flash US Manufacturing Output Index at 47.2 (October: 50.7). 30-month low.
• Flash US Manufacturing PMI at 47.6 (October: 50.4). 30-month low.  

The PMI numbers are diffusion indexes. Readings below 50 show contraction so it's contraction across the board.

November saw a solid contraction in business activity across the US private sector, according to latest ‘flash’ PMI™ data from S&P Global. Lower output was seen across both manufacturing and service sectors amid increasingly steep downturns in demand. The overall fall in activity was the second-fastest since May 2020 as inflation, rising borrowing costs and economic uncertainty weighed on demand. 

Demand conditions worsened as the fourth quarter progressed, with new orders across the private sector falling in November at the fastest pace since the initial pandemic wave in May 2020. With the exception of the early stages of the pandemic, the decrease in total new sales was the sharpest since 2009.

Manufacturers and service providers alike recorded steeper declines in new business, with many firms stating that the impact of inflation and interest rates had led to greater hesitancy and postponements by customers in placing orders. The pace of decline in new export orders also gathered momentum, with manufacturing weakness being met by a dwindling service sector performance in external markets.

Meanwhile, lower new order inflows led to a strong reduction in levels of outstanding business at US firms. The fall in backlogs of work was the sharpest in two-and-ahalf years, with manufacturers reporting the steeper decline in work-in-hand. 

Chris Williamson, Chief Business Economist at S&P Global Comments 

• “Business conditions across the US worsened in November, according to the preliminary PMI survey findings, with output and demand falling at increased rates, consistent with the economy contracting at an annualized rate of 1%.”
• “Companies are reporting increasing headwinds from the rising cost of living, tightening financial conditions – notably higher borrowing costs – and weakened demand across both home and export markets.”
• “Skill shortages also remain a worrying constraint on expansion, but there is better news on supply chains, with supplier performance improving in November for the first time for over three years.” 
• “While the reduced supply chain stress is partly a symptom of lower demand, the alleviation of supply delays removes a key driver of inflationary pressures and has helped moderate the overall rate of input cost inflation to a near two-year low. November even saw increasing numbers of suppliers, factories and service providers offering discounts to help boost flagging sales. Hiring has also slowed to a crawl so far in the fourth quarter as firms focus on reducing costs.”
• “In this environment, inflationary pressures should continue to cool in the months ahead, potentially markedly, but the economy meanwhile continues to head deeper into a likely recession.”  

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