The preliminary reading of the US S&P Global services Purchasing Managers' Index (PMI) came in at 57.9 in October, slightly below the 58.0 expected and down from 59.8 previously.

The flash manufacturing PMI registered 56.0, topping expectations of 55.5 but down from the prior 57.0. The composite output index, which combines both sectors, slipped to 57.6 from 58.4. For all the monthly pullbacks, each headline stayed well above the 50 mark that separates expansion from contraction.

Within the details, selling prices rose at the sharpest rate since August 2022, while new orders reached their highest level in over four-and-a-half years. Business output expectations for the 12 months ahead cooled compared with September but were still the second highest seen this year.

The release follows last month's surprise jump in the survey, which markets took as a hawkish signal at the time. Employment in that report was at its strongest since June 2022, and input cost inflation at its highest since October 2022.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“October’s flash PMI data indicate that the US economy continues to boom at the start of the fourth quarter. The output readings from the survey are consistent with GDP growing at a 5% annualized rate after a 4% expansion was signalled for the third quarter. Especially healthy corporate earnings and profits are also indicated, and hiring has surged as companies seek to boost capacity to fulfil stronger customer demand.

“If the reopening of the economy after COVID is excluded, recent months have seen the best growth spell for US businesses since early 2015.

“However, cost pressures remain a key concern, notably as the renewed surge in oil prices reverberates through to impact a wide variety of goods and services. Supply chain bottlenecks have meanwhile intensified, and order book backlogs are growing, making it easier for companies to pass higher costs on to customers. The result is the sharpest increase in selling prices for over four years to a pace that indicates consumer price inflation is likely to rise further above the Fed’s target in the coming months.”

The report's commentary was pointed, noting that if the Federal Reserve took the figures seriously, it would be hiking next week. It added that while the survey is in theory a good forward-looking indicator at the front edge of leading indicators, in practice it has been mediocre at predicting economic momentum in the post-COVID period.

The flash readings are provisional by design, with final October figures due in the first days of next month, and the release lands a week ahead of the Federal Reserve policy meeting referenced in the report's commentary.

Background on the flash PMIs

S&P Global publishes flash estimates of its US manufacturing and services PMIs each month at 9:45 am ET, usually about a week before the month ends. The flash readings are based on roughly 85% of survey responses, making them among the earliest snapshots of US business conditions. Final figures follow in the first days of the next month and rarely differ much from the flash estimates.

The indexes are diffusion measures built from surveys of purchasing managers at private-sector companies. A reading above 50 indicates expansion from the prior month, while below 50 signals contraction. The manufacturing PMI is a composite of sub-indexes: new orders, output, employment, suppliers' delivery times and stocks of purchases. The services headline is the business activity index, based on a single question about activity levels. The two feed into a composite output index that provides a broad read on private-sector growth.

Sub-indexes are often more revealing than the headlines. Input prices and output prices — the prices charged — offer an early gauge of cost pressures and how much firms are passing on to customers, making them closely watched for inflation signals. Employment, new orders, export orders and business expectations add detail on demand and hiring.

S&P Global's PMIs tend to move markets less than the ISM surveys, which have a longer history and a larger following, though the two sometimes diverge. Their main advantage is timing and comparability: flash PMIs for the eurozone, UK, Japan, Australia and India are released the same day, giving traders a synchronized look at the global economy and letting them judge US momentum against other major economies.

Source: InvestingLive (ForexLive)