US private sector output dips faster in August 2022: S&P

The headline Flash US PMI Composite Output Index registered 45.0 in August 2022, down from 47.7 in July 2022, and indicated a second successive monthly decrease in total business activity. The reduction in output was broad-based, with manufacturers and service providers registering lower activity. Service sector firms recorded the steeper rate of decline, as activity fell sharply, while goods producers saw a modest drop in output.

Material shortages, delivery delays, hikes in interest rates, and strong inflationary pressures all served to dampen customer demand, according to panellists. August data signalled a renewed contraction in overall sales as manufacturers and service providers struggled with subdued demand conditions. Though modest, the drop in new orders was the sharpest in over two years. New sales were weighed down by weak domestic and foreign client demand, as new export orders fell further and at a solid pace.

The rate of input cost inflation eased for the third month running midway through the third quarter, with input prices rising at the slowest pace for a year-and-a-half. That said, the pace of increase in operating expenses remained historically marked, with firms linking hikes in cost burdens to increased interest rates, and higher prices for a range of raw materials and transportation. Some companies also stated that increases in wages to attract and retain workers had placed additional pressure on expenses.

In line with the trend for cost burdens, firms increased their selling prices at the softest pace in 18 months in August. The softer rise in output charges was linked to efforts to pass through any concessions to customers to encourage the placement of orders. That said, the rate of inflation was marked overall and faster than in any period before March 2021.

Weak client demand and lower new orders led firms to scale back their hiring efforts, as employment rose at the slowest pace in 2022 to date. Although some companies continued to note challenges finding suitable replacements for voluntary leavers, a growing number of firms stated that uncertainty and rising costs led them to delay the immediate replacement of staff.

A reduction in pressure on capacity was also evident in a third successive monthly decline in private sector backlogs of work. The fall in the level of outstanding business was the fastest in over two years and solid overall. Softer demand conditions allowed firms to successfully complete work-in-hand. Despite weak client demand, private sector firms were more upbeat regarding the outlook for output over the coming 12 months in August.

Manufacturers and service providers recorded greater optimism, as the level of total positive sentiment reached the highest for three months. Confidence stemmed from hopes of greater client demand and the acquisition of new customers through advertising and marketing campaigns. That said, the degree of optimism was below the series trend as firms anticipate challenging months ahead.

The US PMI is produced by S&P Global and is based on original survey data collected from a representative panel of around 800 companies based in the US manufacturing and service sectors. The flash estimate is based on around 85 per cent of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.

ALCHEMPro News Desk (NB)