U.S. Business Activity Declines to Four-Month Low in August

(Reuters) – U.S. business activity fell to a four-month low in August and firms struggled to pass on higher prices to consumers, suggesting inflation may continue its downward trend in the coming months.

S&P Global reported that its flash U.S. Composite PMI Output Index for August decreased to 54.1, slightly down from a final reading of 54.3 in July. This index tracks both the manufacturing and services sectors and remains at a healthy level compared to measurements over the past two years. A reading above 50 indicates expansion in the private sector.

Although there was a slight uptick in the services sector, it was overtaken by a decline in manufacturing. Prices charged for goods and services experienced their slowest rise since January, aligning with S&P Global’s view that inflation is consistent with the Federal Reserve’s 2% target. Businesses reported that customers are resisting high prices, engaging in bargain hunting, reducing purchases, and switching to lower-priced alternatives.

In July, inflation on an annual basis dropped below 3% for the first time in nearly three and a half years, according to the Labor Department.

The nearly stagnant composite PMI indicated that economic activity remained steady as the third quarter progressed. The GDP increased at an annualized rate of 2.8% in the second quarter, a rise from the 1.4% pace observed from January to March.

Chris Williamson, chief business economist at S&P Global Market Intelligence, noted, “The solid growth picture in August points to robust GDP growth in excess of 2% annualized in the third quarter, which should help alleviate near-term recession fears.” He added that the decrease in selling price inflation nearing pre-pandemic averages supports the case for lower interest rates.

The S&P Global survey showed new orders received by private businesses marginally rose to 52.3 from 52.2 in July. The measure of prices paid for inputs by businesses held steady at 58.0, while the gauge for prices charged fell to 52.8 from 53.1 in July.

Private sector employment declined, with the service sector shrinking, and the manufacturing sector adding the fewest jobs since January. The flash manufacturing PMI dropped to an eight-month low of 48.0 in August, down from 49.6 in July, with economists’ expectations for the index remaining unchanged.

Conversely, the flash services PMI increased slightly to 55.2 from 55.0 in July, contrary to economists’ predictions for a decline to 54.0. Despite the overall growth, S&P Global noted that sentiment regarding the future was negatively impacted by uncertainty surrounding the November presidential election and concerns about future demand, especially in manufacturing.