With the exception of the initial pandemic period, the rate of decrease in the PMI is the second-fastest since 2009.

(Click on image to enlarge)

Please consider the S&P Global Flash US Composite PMI™

Key Findings

• Flash US PMI Composite Output Index at 47.3 (September: 49.5). 2-month low.
• Flash US Services Business Activity Index at 46.6 (September: 49.3). 2-month low. 
• Flash US Manufacturing Output Index at 50.7 (September: 50.6). 5-month high.
• Flash US Manufacturing PMI at 49.9 (September: 52.0). 28-month low.  

Private sector firms in the US recorded a further downturn in output at the start of the fourth quarter, according to latest ‘flash’ PMI™ data from S&P Global. The fall in business activity was solid and stronger than that seen in September, as service providers signalled a quicker decline. Manufacturers, on the other hand, saw output rise for the second month running, albeit only marginally. 

The headline Flash US PMI Composite Output Index registered 47.3 in October, down from 49.5 in September. With the exception of the initial pandemic period, the rate of decrease was the second-fastest since 2009.  

New orders returned to contraction territory in October. The decrease in new business was only marginal, but was broad based as manufacturers and service providers alike recorded weaker client demand. Goods producers drove the decline, with companies highlighting the impact of inflation and stockbuilding earlier in the year on customer demand, as clients utilised current holdings of inputs and semi-finished items. A reduction in foreign customer demand was also indicated as a strong dollar and challenging economic conditions in key export markets reportedly weighed on new export orders. New business from abroad fell sharply and at the quickest pace since May 2020.  

 S&P Global Flash US Services PMI™ 

The S&P Global Flash US Services Business Activity Index posted at 46.6 in October, down from 49.3 in September, to indicate a solid decline in service sector output. The latest data signalled an acceleration in the decline in business activity to the second-fastest fall in almost two-and-a-half years. Firms linked the decrease to weak client demand and the impact of inflation and higher interest rates. At the same time, new business fell for the second time in the last three months, albeit only marginally overall. Weighing on total new sales was a drop in foreign client demand. New export orders declined at a solid pace due to inflationary pressure in key export markets.  

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

•  “The US economic downturn gathered significant momentum in October, while confidence in the outlook also deteriorated sharply. The decline was led by a downward lurch in services activity, fuelled by the rising cost of living and tightening financial conditions. While output in manufacturing remains more resilient for now, October saw a steep drop in demand for goods, meaning current output is only being maintained by firms eating into backlogs of previously placed orders. Clearly this is unsustainable absent of a revival in demand, and it’s no surprise to see firms cutting back sharply on their input buying to prepare for lower output in coming months. 
• “One upside of this drop in input buying has been a further alleviation of supply constraints, which alongside the stronger dollar have helped cool price pressures in the manufacturing sector. 
• “Although price pressures picked up slightly in the service sector due to high food, energy and staff costs, as well as rising borrowing costs, increased competitive forces meant average prices charged for services grew at only a fractionally faster rate. Combined with the easing of price pressures in the goods-producing sector, this adds to evidence that consumer price inflation should cool in coming months. 
• “The surveys therefore present a picture of the economy at increased risk of contracting in the fourth quarter at the same time that inflationary pressures remain stubbornly high. However, there are clearly signs that weakening demand is helping to moderate the overall rate of inflation, which should continue to fall in the coming months, especially if interest rates continue to rise.” 

Key Ideas

Inflation is moderating but the cost is recession

Export orders are weakening in both goods and services. Companies are holding together for now on the unsustainable strength of backlogs.

This does not seem to match the trade surge in GDPNow. 

For discussion, please see GDPNow Creator Pat Higgins On the October Surge in the GDP Forecast

Nor is an alleged surge in China's exports consistent with an export surge in the US. China's trade surplus for the first nine months of 2022 was 49% larger than it was over the same period last year, which was itself a record trade surplus.

For discussion of China's exports, please see China's GDP Beats Expectations But Retail Sales Are Weak Again

A reader asked about the discrepancies and all I could come up with is LNG and soybean exports and/or the GDPNow model factoring in more than was really there.

Regardless, the global economy is slowing fact. The US will not escape recession no matter what the wishers, hopers, real estate agents, and president Biden say.

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