US Private Businesses Enjoy October Rebound As PMI Surpasses Expectations: Soft Landing Hopes Get A Boost

U.S. private businesses experienced a welcome resurgence in economic activity in October, marking a departure from the somewhat stagnant conditions observed throughout August and September.

The latest data from the S&P Global Purchasing Managers’ Index (PMI) has provided a glimmer of hope, as it unveiled a growth trajectory for October, surpassing economist expectations.

Manufacturing On The Rise

The S&P Global Manufacturing PMI rose to 50 in October 2023, an improvement from September’s 49.8. It exceeded the anticipated figure of 49.5, as preliminary data indicated. This reading stands as the highest recorded in the past six months. It indicates a noteworthy stabilization in the operational environment for manufacturing firms. This uptick in manufacturing activity is seen as a positive sign for the broader U.S. economy.

Services Sector Resilience

Simultaneously, the S&P Global U.S. Services PMI ascended to 50.9. That’s up from September’s 50.1, marking a three-month high and surpassing market expectations of 49.8, as preliminary estimates revealed. Employment figures showed positive growth. Meanwhile, the same period witnessed a third consecutive decline in new business, albeit at a slower pace compared to the previous month. The services sector appears to be holding steady despite some challenges on the new business front.

“Hopes of a soft landing for the U.S. economy will be encouraged by the improved situation seen in October. The S&P Global PMI survey has been among the most downbeat economic indicators in recent months, so the upturn in US output growth signaled at the start of the fourth quarter is good news,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

The data indicated a notable reduction in inflationary pressures. Cost burdens increased at their slowest rate in a span of three years. Simultaneously, businesses displayed prudence by tempering their price hikes. This moderation in inflationary pressures could have far-reaching implications for the Federal Reserve’s monetary policy decisions.

Challenges On The Export Front

Panelists cited the strength of the U.S. dollar as a contributing factor to the scarcity of new export orders. It’s diminishing competitiveness, along with challenging economic conditions in key export markets. While the domestic economy is showing signs of improvement, global challenges remain. That impacts the ability of U.S. businesses to expand their reach internationally.

Uncertainty Looms

“The survey's selling price gauge is now close to its pre-pandemic long-run average and consistent with headline inflation dropping close to the Fed's 2% target in the coming months, something which looks likely to be achieved without output falling into contraction. That said, the tensions in the Middle East pose downside risks to growth and upside risks to inflation, adding fresh uncertainty to the outlook,” Williamson said.

Market Reactions

Treasury yields slightly rose after the October’s PMIs release, with the rate-sensitive 2-year yields rising 7 basis points to 5.12%. Longer-dated yields held relatively steady, with the 10-year yield hovering at 4.86%.

Stocks positively reacted, with the SPDR S&P 500 ETF Trust SPY rising 0.7%, following fourth straight sessions of losses.

The U.S. dollar strengthened, as traders mull higher-for-longer scenarios on interest rates, with the Invesco DB USD Index Bullish Fund ETF UUP rising 0.5%.

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