US Private Sector Growth Remains Strong In October, Price Pressures Now Consistent With 'Inflation Running Below The Fed's 2% Target'

The U.S. private sector continues to display robust growth signals, according to the latest data from S&P Global’s Purchasing Managers’ Index (PMI) for October.

The surveys indicate that business activity, particularly in the services sector, exceeded expectations, while manufacturing contracted at a slower rate than anticipated.

In addition, input costs and prices charged have shown signs of slowing inflation, with the service sector seeing significant price moderation, bolstering hopes of an inflation return to the Fed’s 2% target.

Business confidence is on the rise, signaling optimism for a stable economic environment post-election.

Flash October PMI Reports: Key Data Highlights

• S&P Global Flash Composite PMI: Increased to 54.3 in October, up from 54 in September, marking a stronger expansion in the U.S. overall business activity.
• S&P Global Flash Services PMI: Rose to 55.3 in October, slightly higher than the 55.2 reported in September and beating market expectations of 55.
• S&P Global Flash Manufacturing PMI: Improved to 47.8, up from 47.3 in September, and above the expected 47.5. While still in contraction territory (below 50), the slower decline signals a reduced pace of manufacturing slump.
• New orders: The U.S. private sector saw the sharpest rise in new orders for goods and services in 17 months, largely fueled by stronger domestic demand. However, export orders for services declined slightly. The U.S. services sector saw the largest influx of new business since April 2022, with strong domestic demand helping offset weaker export orders.
• Employment: The rate of job creation slowed for the third consecutive month as businesses remain cautious, citing political uncertainties ahead of the 2024 presidential election.
• Inflation: Input costs and prices charged have decelerated, with price inflation in the services sector hitting its lowest level since May 2020. According to the survey, sales were driven by more competitive pricing, as firms across the services industry reduced prices to attract customers. The broader decline in inflation suggests that consumer prices may fall below the Federal Reserve’s 2% target.
• Business optimism: Confidence in future output surged to a 29-month high, as businesses anticipate more stable growth prospects following the election.

Economist Takeaways

Chris Williamson, chief business economist at S&P Global Market Intelligence, offered a largely positive assessment of the October PMI data.

"October saw business activity continue to grow at an encouragingly solid pace," with the data suggesting an annualized GDP growth rate of around 2.5%.

The primary driver of this expansion remains the services sector, where demand has significantly strengthened. Williamson also highlighted that new order inflows have reached their highest level in nearly 18 months.

The economist highlighted that price inflation for goods and services has fallen to its lowest level since early 2020, largely due to businesses lowering prices to attract consumers.

“These weaker price pressures are consistent with inflation running below the Fed’s 2% target,” he said.

Despite the overall positive growth signals, Williamson expressed some concerns over the labor market. He said that businesses remain cautious about expanding their workforce, with hiring levels modestly declining for the third month in a row.

Market Reactions

Financial markets remained largely steady despite the positive data stemming from the PMI reports. The S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY, was up 0.3% on the day by 10:10 a.m. in New York.

The tech-heavy Invesco QQQ Trust QQQ rose by 0.7%, supported by strong gains in Tesla Inc. TSLA, which soared over 15% after reporting better-than-expected quarterly earnings.

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