US Manufacturing PMI Unexpectedly Slumps Into Contraction; Jobs & Prices Lower

Amid a collapse in ‘hard’ economic data, ‘soft’ surveys from S&P Global was expected to see both Services and Manufacturing PMIs slide further in preliminary November data.

However, the data was more mixed with US Manufacturing falling more than expected to 49.4 – back into contraction – (vs 49.9 exp) from 50.0 in October. However, US Services unexpectedly rose from 50.6 to 50.8 (exp 50.3).

Source: Bloomberg

Commenting on the data, Siân Jones, Principal Economist at S&P Global Market Intelligence said:

“The US private sector remained in expansionary territory in November, as firms signalled another marginal rise in business activity. Moreover, demand conditions – largely driven by the service sector – improved as new orders returned to growth for the first time in four months.

The upturn was historically subdued, however, amid challenges securing orders as customers remained concerned about global economic uncertainty, muted demand and high interest rates.

Businesses cut employment for the first time in almost three-and-a-half years in response to concerns about the outlook. Job shedding has spread beyond the manufacturing sector, as services firms signalled a renewed drop in staff in November as cost savings were sought.

“On a more positive note, input price inflation softened again, with cost burdens rising at the slowest rate in over three years. The impact of hikes in oil prices appear to be dissipating in the manufacturing sector, where the rate of cost inflation slowed notably.

Although ticking up slightly, selling price inflation remained subdued relative to the average over the last three years and was consistent with a rate of increase close to the Fed’s 2% target.”

The US data comes after yesterday’s Euro area composite flash PMI increased by 0.6pt to 47.1, above consensus expectations, driven by a meaningful acceleration in Germany and the periphery, partially offset by a marginal decline in France. In the UK, the composite flash PMI improved meaningfully and entered expansionary territory at 50.1, above consensus expectations, on the back of a pickup in both sectors, with the services sector index entering positive territory at 50.5.

Goldman sees three main takeaways from today’s data.

• First, we see a potential turning point in Euro area activity, with forward-looking indicators all improving in November, potentially setting a positive stage for the remainder of the year and the beginning of 2024. While the improvement seems to be broad-based, the upside surprises in the manufacturing sector in Germany and the Euro area as a whole may point to early signs of the sector’s revival.

• Second, inflationary pressures, after moderating for some time, show signs of renewed intensification in the Euro area, as reflected by the output and input price components ticking up in November.

• Third, UK growth momentum was meaningfully better than last month, and is picking up across the board, with the headline and services indices coming in above 50. This, however, is now accompanied by an increase in cost pressures, with both the input and output price indices edging up in November.

Finally, back to the US, S&P Global found that US business uncertainty was also heightened among US firms, as expectations regarding the year-ahead outlook slipped to the weakest since July.