This morning’s events in Europe stirred anticipation for the US preliminary PMIs for November, which were expected to show modest improvements, particularly due to recent positive surprises in hard data. As anticipated, the flash US PMI Composite Output Index indeed rose, hitting 55.3, up from October’s 54.1, marking a 31-month high. The Flash US Services PMI Business Activity Index also increased to 57.0 from 55.0, achieving a 32-month high. However, the Flash US Manufacturing PMI saw slight improvement, rising to 48.8 from October’s 48.5, still indicative of contraction but the highest point in four months.
Delving deeper into the manufacturing sector, the Flash US Manufacturing Output Index dropped significantly to 46.3 from 49.2 in October, marking a 23-month low. The results of this survey reveal a complex landscape within the U.S. economy, with optimism driving growth in the service sector, though signs of weakness persist in manufacturing. Commenting on the results, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that confidence in business outlook has surged to a two-and-a-half-year high primarily due to expectations of lower interest rates and a pro-business stance from the incoming administration.
Williamson pointed out that the increased confidence has led to a notable rise in output and inflows of orders, suggesting that economic growth is gaining momentum in the fourth quarter. This is noteworthy as inflationary pressures appear to be easing; the survey’s price metric for goods and services indicates only a minor uptick in prices, signifying that consumer inflation is running below the Federal Reserve’s 2% target, which could affect monetary policy decisions moving forward.
Nevertheless, there are concerns about the heavy dependence on the services economy for growth, especially as manufacturing production continues to decline. The report indicates that while manufacturing confidence has improved due to expectations of greater protectionism and tariffs, which are expected to boost domestic goods production, there remains a troubling reliance on a single sector. This reliance could pose risks if consumer demand shifts or if the expected benefits of policy changes do not materialize.
Amid these developments, factories are reportedly increasing their purchases of imported materials in anticipation of potential tariffs, leading to heightened pressure on supply chains not seen in over two years. Such factors could contribute to rising prices, especially if demand surpasses supply in the near future. The interplay between consumer demand, production capabilities, and pricing dynamics will be critical to monitor as the economic landscape evolves in response to domestic policies and global conditions.
In summary, the preliminary US PMIs for November reflect a promising outlook for economic growth, underpinned by optimism regarding future business conditions. However, the challenges in the manufacturing sector and potential inflationary pressures stemming from changes in trade policies require careful attention. The balance between fostering economic growth and managing inflation will play a crucial role in shaping the overall economic narrative as the year progresses, particularly in light of the new administration’s policies.