Activity across the implacable US economy nearly stalled early this month, data released on Tuesday suggested.
Flash PMIs from S&P Global showed factory activity slipped back into contraction territory in April, while a measure of services activity likewise decelerated, even as it managed to remain above the 50 demarcation line.
At 49.9, the manufacturing print was the first sub-50 reading of 2024 and counted as a miss. Consensus wanted 51.9.
The services gauge printed a five-month low at 50.9, likewise short of estimates.
While hardly a disaster, the figures pointed to a loss of momentum as the second quarter dawned. The first read on Q1 GDP, due out of the BEA later this week, is expected to show the economy grew at an above-trend pace over the first three months of the year driven, as usual, by consumer spending.
The most notable takeaway from the PMI updates was doubtlessly the color on hiring. Specifically, S&P Global suggested services sector firms cut payrolls in April at the fastest rate since the financial crisis (excluding the COVID purge, obviously).
“The decline in services staffing levels in April was the most pronounced since the end of 2009,” the color accompanying the release said, noting that firms “indicated they held off on backfilling positions following the departure of staff.” Factory payrolls, by contrast, increased “modestly.”
The lackluster read on services employment is either good news or bad news depending on how you want to look at it. Plainly, the Fed’s struggling to contain price pressures on the services side of the economy, so to the extent the decline in payrolls is indicative of slower demand, that might not be the worst thing in the world. On the other hand, job losses are job losses, which is to say they’re inherently undesirable, particularly for the people impacted by them.
S&P Global’s chief business economist Chris Williamson flagged the potential for additional lost momentum going forward. “April saw inflows of new business fall for the first time in six months and firms’ future output expectations slipped to a five-month low amid heightened concern about the outlook,” he said.
The silver lining, Williamson went on, is that “the deterioration of demand and cooling of the labor market fed through to lower price pressures.” Both goods and services “saw a welcome easing in rates of increase for selling prices” early this month, according to the release, which also noted that the nature of inflation is shifting. Price pressures were more acute on the manufacturing side in three of the last four months. It’s no secret why: Commodities prices are higher.
This may well strike some as a non sequitur, but when we divide labor and costs, etc, into the service sector and the manufacturing sector we make an error that is not insignificant. Services are, in fact, generally services and require certain skills to deliver properly. For many, if not most, manufacturing firms, more than half the employees on their payrolls are actually service workers: HR, engineers, accountants, IT folks, etc. Hiring these folks at US Steel, GM and others of firms their ilk puts the manufacturing firms in direct competition with service firms that hire the same kinds of employees and even sell these services to manufacturers who wish to outsource. For this reasons I always take comparisons of the manufacturing and services sectors with a large grain of salt. Service firms mostly create and deliver services. Manufacturers are generally hybrids in their characteristics.