## US Economy Shows Robust Growth in October: PMI Data Points to Strong Services Sector and Slowing Inflation
The U.S. economy continues to demonstrate strong growth signals, according to the latest data from S&P Global’s Purchasing Managers’ Index (PMI) for October. The surveys highlight a robust services sector, with business activity exceeding expectations, while manufacturing contraction slowed. Moreover, the data reveals promising signs of slowing inflation, with input costs and prices charged showing a significant moderation, particularly in the services sector. This development offers hope for a return to the Federal Reserve’s 2% inflation target.
### Key Data Highlights from October Flash PMI Reports
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S&P Global Flash Composite PMI:
Increased to 54.3 in October, up from 54 in September, indicating stronger overall business activity expansion in the U.S.*
S&P Global Flash Services PMI:
Rose to 55.3 in October, surpassing the 55.2 reported in September and beating market expectations of 55. This reflects robust growth in the services sector.*
S&P Global Flash Manufacturing PMI:
Improved to 47.8, up from 47.3 in September, and exceeding the anticipated 47.5. While still in contraction territory (below 50), the slower decline suggests a reduced pace of manufacturing slump.### A Closer Look at the Key Findings
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New Orders:
The U.S. private sector witnessed the sharpest rise in new orders for goods and services in 17 months, primarily fueled by stronger domestic demand. However, export orders for services saw a slight decline.*
Employment:
The rate of job creation slowed for the third consecutive month, as businesses remain cautious, citing political uncertainties ahead of the 2024 presidential election.*
Inflation:
Input costs and prices charged have decelerated, with price inflation in the services sector hitting its lowest level since May 2020. According to the survey, sales were driven by more competitive pricing, as firms across the services industry reduced prices to attract customers. This broader decline in inflation suggests that consumer prices might fall below the Federal Reserve’s 2% target.### Business Confidence on the Rise
Confidence in future output surged to a 29-month high, indicating businesses anticipate more stable growth prospects following the election. This positive outlook suggests a belief in a more predictable economic environment.
### Economist Takeaways
Chris Williamson, chief business economist at S&P Global Market Intelligence, offered a largely positive assessment of the October PMI data. “October saw business activity continue to grow at an encouragingly solid pace,” with the data suggesting an annualized GDP growth rate of around 2.5%. The services sector remains the primary driver of this expansion, fueled by significantly strengthened demand.
Williamson also highlighted that new order inflows have reached their highest level in nearly 18 months. He pointed to the decline in price inflation for goods and services, reaching its lowest level since early 2020, largely due to businesses lowering prices to attract consumers. “These weaker price pressures are consistent with inflation running below the Fed’s 2% target,” he said.
Despite the overall positive growth signals, Williamson expressed some concerns over the labor market. He noted that businesses remain cautious about expanding their workforce, with hiring levels modestly declining for the third month in a row.
### Market Reactions
Financial markets remained largely steady despite the positive data stemming from the PMI reports. The S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY, was up 0.3% on the day by 10:10 a.m. in New York. The tech-heavy Invesco QQQ Trust QQQ rose by 0.7%, supported by strong gains in Tesla Inc. TSLA, which soared over 15% after reporting better-than-expected quarterly earnings.
The October PMI data provides a positive outlook for the U.S. economy, indicating continued robust growth, slowing inflation, and increasing business confidence. However, the cautious hiring trends suggest potential future challenges for the labor market, requiring careful monitoring.