The US economy deteriorated further in December according to the S&P Global manufacturing and services PMI. This index fell to 44.6 from 46.4, that matches the weakest since April 2020 and is the 6th month in a row below 50.
The services index fell to 44.4 from 46.2 and “The decline in activity was led by a further solid decrease in new orders during December. Higher borrowing costs, housing and financial sector weakness, and inflationary pressures all weighed on customer spending.” Positively, “Inflationary pressures in the service sector cooled notably in December, as input costs rose at the softest pace since October 2020. Despite some material and labor costs rising, reports of lower wholesale and fuel prices eased pressure on cost burdens.” Prices received moderated to the lowest in more than two years. Employment rose modestly but was still the “2nd slowest since September 2021 as the non-replacement of voluntary leavers and reports of lay-offs increased.” As for the outlook from here, “the degree of confidence was among the weakest in two years as firms highlighted concerns regarding inflation, hikes in interest rates and dwindling demand.”
The manufacturing index fell 1.5 pts m/o/m to 46.2, the lowest since mid 2020 and “driven by subdued demand and a faster fall in output.” New orders saw one of the biggest drops going back to 2008-2009.” Positive here too was the further easing of inflationary pain points. Employment was little changed but “Manufacturers noted that some lay-offs were due to a lack of new work, whereas others chose not to replace voluntary leavers.” Optimism about the coming few quarters did improve to a 3 month high “but some companies expressed concern regarding industry downturns and inflationary pressures.”
Bottom line, at least with this data point, the US economy is contracting and S&P Global said today’s numbers equate to a 1.5% annualized GDP decline in Q4. The positive, as stated, but also in part due to the weakening of activity, was the further calming of price pressures.
While still under pressure because of weakness in European bonds, the 10 yr yield did back off a few bps on this figure’s weakness. The dollar is near the lows of the morning.
US PMI
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.