US Supply Chain, Manufacturing Data Hints At Impending Slowdown: Stocks Plummet, Safe Havens Rally As Uncertainties Rise

U.S. economic activity, as indicated by S&P Global’s Purchasing Managers’ Indices (PMI), is displaying the first symptoms of deceleration, putting a halt to the strong pace of expansion seen so far this year.

The Composite flash PMI reading for June revealed a weakening economic picture Friday, falling from 54.3 in May to 53 in June. Activity expansion in the service sector slowed from 54.9 in June to 54.1 in June, while manufacturing activity accelerated the pace of contraction, down from 48.4 to 46.3.

This tendency appears to be widely shared across advanced economies, as flash June PMI data from the Eurozone, Japan and the United Kingdom also reveal a lower-than-expected increase in private sector activity.

The slowdown in global economic activity comes at a time when major central banks are emphasizing the need of further increases in interest rates to combat persistent inflation. The Bank of England stunned markets this week by raising interest rates more than expected, while Fed Chair Jerome Powell provided hawkish remarks during his speech before Congress.

Treasury Secretary Janet Yellen said Thursday the chances of a U.S. recession have decreased, while acknowledging the need for some spending restraint to bring inflation under control, while Atlanta Fed President Raphael Bostic said Friday that he is not seeing signs of risk in the economy.

US PMIs For June: Key Highlights

• The S&P Global Flash US PMI Composite Output Index came in at 53 in June, still indicating an expansion but at the slowest pace in three months. A continued increase in new orders drove the output trend, but price pressures gained intensity in June, reversing the downward momentum.
  Manufacturer confidence fell to a six-month low due to fears about inflation and fewer sales. Yet service firms reported the highest level of optimism since May 2022.
  
• The S&P Global Flash US Services Business Activity Index came in at 54.1 in June, still indicating an expansion but at a slower pace than in May (54.9). Demand for services remained strong, but firms reported a faster rise in input prices at the end of the second quarter, and the rate of job creation slowed to the lowest since January due to difficulties replacing voluntary departures.
  
• The S&P Global Flash US Manufacturing PMI continued to plummet in contraction territory, down from 48.4 in May to 46.3 in June, hitting a six-month low. Manufacturers registered the strongest rate of contraction in new orders since December 2022. Firms opted to run down their stocks and reduce input purchasing in June amid sluggish demand prospects. Price pressures further eased. Employment slowed slightly but remained among the strongest months in a year thanks to a better supply of available workers.

Market Reactions: Stocks Fall, Safe Havens Rise

Stocks took a hit on Friday, with the S&P 500 index, as tracked by the SPDR S&P 500 ETF Trust SPY, down 0.8% for the session, stopping its five-week winning streak.

Safe havens gained ground amid rising economic uncertainties. The dollar rose, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.5%.

Gold was the outperformer among major asset classes, with the precious metal, as tracked by the SPDR Gold Trust GLD, jumping 1%.

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