Private Sector Growth Unexpectedly Slows In April, Marks Lowest Increase In 4 Months: 'Drivers Of Inflation Have Changed'

The latest indications on U.S. private sector activity reveal a sharp and unexpected slowdown in the pace of growth in April 2024, marking the softest expansion since December 2023.

A positive takeaway from the flash Purchasing Managers Index (PMI) surveys released Tuesday by S&P Global is the welcome moderation in the rates of increase for selling prices in both goods and services observed in April.

Global’s Flash PMIs For April 2024: Key Takeaways

• The U.S. Composite PMI decelerated from 52.1 to 50.9, marking a four-month low. Nevertheless, April signaled the 15th consecutive month of output increase.
• The U.S. Services PMI fell from 51.7 to 50.9, missing expectations of a rise to 52, marking a five-month low.
• The U.S. Manufacturing PMI fell from 51.9 to 49.9, falling short of the 52 forecasted, hitting a four-month low.
• Output growth moderated in accordance with weakened demand as new orders decreased for the first time in six months.
• Companies reduced employment for the first time in nearly four years, while business confidence also declined to its lowest level since last November.
• Inflation rates generally eased at the beginning of the second quarter, with both input costs and output prices rising at a slower pace overall. Manufacturing input cost inflation reached a one-year high.

Economist Reactions

“The US economic upturn lost momentum at the start of the second quarter,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“Further pace may be lost in the coming months, as April saw inflows of new business fall for the
first time in six months and firms' future output expectations slipped to a five-month low amid heightened concern about the outlook,” he added.

Tougher business conditions led companies to reduce their workforce at a rate not seen since the global financial crisis, excluding the early pandemic lockdown months, he said.

Lower demand and a cooling labor market resulted in reduced price pressures, with April showing a welcome slowdown in the rate of price increases for both goods and services.

Notably, the drivers of inflation have changed. Manufacturing has now registered the steeper rate of
price increases in three of the past four months, with factory cost pressures intensifying in April amid higher raw material and fuel prices, contrasting with the wage-related, services-led price pressures seen throughout much of 2023," Williamson stated.

Market Reactions

The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF UUP, fell 0.4%, hit by the decline in Treasury yields.

The yield in the policy-sensitive two-year Treasury note softened by 5 basis points to 4.94%.

Stocks positively reacted, with the SPDR S&P 500 ETF Trust SPY up 0.8% in early trading Tuesday.

Tech stocks, as tracked by the Invesco QQQ Trust QQQ, outperformed, up 1%.

Gold witnessed a rebound of 0.4% after closing Monday its worst-performing day in years.

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