The S&P Global Flash U.S. Composite PMI declined further into contractionary territory in August. The index dropped 2.7 points to 45, down for the fifth consecutive month. This also marks two consecutive months in contractionary territory (below 50), providing more evidence of the previously discussed (July 6, 2022; April 6, 2022) slowdown in economic activity.
Both manufacturing and services components declined in August with the former down by less than the latter. The S&P Global Flash U.S. Manufacturing PMI fell 0.9 points m/m to 51.3 in August. It is now down 12.1 points from its July 2021 high and at its lowest level since July 2020 as manufacturing was coming off the pandemic lows. The S&P Global Flash U.S. Services PMI sank 3.2 points to 44.1 from 47.3 in the prior month. The services index is now 26.3 points lower than its May 2021 high, registering negative prints in twelve of the last fifteen months.
New durable goods orders decelerated -0.02% m/m in July and slowed versus the prior month’s y/y pace. Primary metals and transport equipment led the decline, falling -1.42% and -0.68%, respectively. Given the Flash PMI data and a tougher y/y comparison coming in August, we would expect new order growth to likely decelerate again.
As consumer spending weakens (August 24, 2022) and businesses adjust to the changing landscape, we would expect inventory growth to slow. In the month of July, wholesale inventories did just that, decelerating to 0.78% m/m versus 1.86% in June. Wholesale inventories are still up 25.41%, the second fastest pace on record, but the month-over-month change in the y/y pace did decelerate. Separately, retail inventories, excluding automobiles, came down to 0.37% in July from 1.51%. Like wholesalers, the y/y pace is down versus last month’s y/y pace, but still the second sharpest increase on record.
The weakness in PMI data, slowdown in order growth, and deceleration in inventories suggests Q3 data has not reversed the trend from the first half of the year.
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Senior Economic Analyst
Boyd Watterson Asset Management, LLC