Solid Services PMI But a Strong Deterioration in Manufacturing, Especially New Orders

Portions of the US economy continue in opposite directions simultaneously. How long can this last?

Dependence on Services Grows

The S&P reports US Economic Upturn Slows in June as Dependence on Services Grows

Key PMI Findings

• Flash US PMI Composite Output Index at 53.0 (May: 54.3). 3-month low.
• Flash US Services Business Activity Index(2) at 54.1 (May: 54.9). 2-month low.
• Flash US Manufacturing Output Index(4) at 46.9 (May: 51.0). 5-month low.
• Flash US Manufacturing PMI (3) at 46.3 (May: 48.4). 6-month low.

S&P Global Flash US Services PMI™

• At 54.1, the S&P Global Flash US Services Business Activity Index indicated a further solid expansion in output at services firms in June.
• The pace of expansion was broadly in line with May’s 13-month high. New export orders also rose, signalling back-to-back monthly increases in external client demand.
• Service sector firms registered a quicker rise in input prices at the end of the second quarter. The rate of cost inflation was the steepest for five months, as companies stated that greater wage bills in particular placed further pressure on business expenses.

S&P Global Flash US Manufacturing PMI™

• The S&P Global Flash US Manufacturing PMI posted 46.3 in June, down from 48.4 in May, to signal a sharper deterioration in operating conditions across the manufacturing sector. The decline in the health of the sector was the most severe in 2023 to date and stemmed from a marked reduction in new orders.
• Manufacturers recorded the fastest rate of contraction in new orders since December 2022, with weak demand linked to muted customer confidence. Some firms also noted that sufficient stock levels at clients had led to lower new orders. Similarly, foreign client demand remained subdued. Although easing from that seen in May, the pace of contraction in new export orders was steep overall.
• Cost pressures continued to dwindle across the manufacturing sector, as suppliers sought to boost their sales and offer reduced prices. The pace at which input prices fell was the quickest since May 2020.

Chris Williamson, S&P Chief Economist, Comments

• “Growth remains dependent on service sector spending, however, with manufacturing slipping back into decline after three months of growth. While improving supply conditions had helped boost manufacturing production in prior months, an increasingly severe downturn in new orders mean factories are running out of work.
• “The question remains as to how resilient service sector growth can be in the face of the manufacturing decline and the lagged effect of prior rate hikes. Any further rate hikes will of course have a further dampening effect on this sector which is especially susceptible to changes in borrowing costs.
• “The tightness of the labor market remains a concern, and upward wage pressure remains a key driver of higher costs in the service sector. However, it is encouraging to see the overall rate of selling price inflation for goods and services drop to the lowest since late 2020 in a sign that the Fed is winning its fight against inflation.”

France PMI

Eurozone Composite PMI

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Spotlight China

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Divergences

Germany is in recession. The Eurozone is in recession. China is weak. US manufacturing is in recession. US housing is in recession.

US services appear strong. US is GDP, assuming you believe the numbers, is at trend growth. GDI is a vastly different story. For discussion, please see Not in Recession? Don’t Count On It. Two Key Divergences Explain.

China did not decouple from the global economy in 2008 and the US won’t now. Something will give, assuming it hasn’t already.