August has seen the largest drop in business activity in the United States since February, largely owing to falling demand for services.
The composite PMI (Purchasing Managers’ Index) in the United States that S&P Global uses to keep tabs on the manufacturing and services industries dropped from 52 in July to 50.4 in August, the largest dip since November 2022.
August's figures marked the seventh straight month of growth, but they just barely topped the 50 threshold separating growth from decrease due to weaker demand for manufactured products and services.
Recession fears have been eased, and GDP growth forecasts have been raised as a result of recent improvements in the job market and consumer spending. However, data revealed this week has dampened optimism about the economy's future.
Although the Services PMI rose in August to 51.0, this was the slowest rate of increase since February, and the Manufacturing PMI dipped to 47.0 in August from 49.0 in July, marking the fourth consecutive month of decrease.
Economists surveyed by Reuters had predicted a Services PMI of 52.2 and a manufacturing PMI of 49.3, so this week's numbers were disappointing.
"A near-stalling of business activity in August raises doubts over the strength of U.S. economic growth in the third quarter," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
The reduction in new orders and total order volume across all industries was directly attributable to weak consumer demand. After sitting at 51.0 for the previous six months, the services sector saw its new business index drop to 49.2.
Companies in both the manufacturing and service sectors refrained from raising prices to entice customers and from expanding their workforces to make up for the higher expenses of returning to production.
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