US Economy ‘Near Stalling,’ Surprisingly Poor PMIs Suggest

The mighty US services sector expanded at the slowest pace in six months, according to preliminary PMIs released on Wednesday.

At 51, S&P Global’s gauge of service activity across the world’s largest economy was perilously close to the demarcation line below which activity is presumed to be contracting.

The flash print marked a meaningful (if not especially dramatic) decrease from July’s 52.3 read and constituted a miss versus consensus (economists expected 52.2).

The manufacturing gauge printed 47. That too was a miss. Consensus there was 49.

Chris Williamson, chief business economist at S&P Global, described “a near-stalling” of US business activity in August. The composite gauge registered 50.4 — one foot in contraction and the other on a banana peel, if you will.

These readings (and Williamson’s assessment) made for a rather stark contrast with some GDPNowcasts which suggest the US economy is expanding at a very brisk pace.

The color accompanying the release described a stagflationary backdrop and, notably, evidence of consumer pushback. “Upward pressure on operating expenses from greater wage bills, increased raw material prices and higher fuel costs led to a re-acceleration in the pace of input price inflation in August,” S&P Global said, adding that although “firms continued to pass through higher costs to clients, customer requests for discounts and competitive pricing stymied upticks in selling prices.”

“Greedflation,” it would appear, is hitting a ceiling. Maybe Americans aren’t keen to run their credit card tab too much beyond $1 trillion given record-high variable plastic rates.

As for hiring, services sector firms were doing less of it. In fact, they weren’t doing any of it on net. At 50.1, the services side employment gauge was the lowest since October, and suggested hiring was basically unchanged.

“The service sector-led acceleration of growth in the second quarter has faded, accompanied by a further fall in factory output,” Williamson remarked, summing things up. On the bright side, “weak demand is starting to limit pricing power, which should help keep a lid on inflation around the 3% mark,” he said.