U.S. Economy Contracts in August Amid Weaker Demand — S&P Global

By Maria Martinez

 

The U.S. economy contracted in July as manufacturing output dropped modestly and the service sector recorded a sharp decline in activity, data from a purchasing managers survey showed Tuesday.

The S&P Global Flash Composite Output Index fell to 45.0 in August from 47.7 in July. The rate of decline was the sharpest since the initial stages of the pandemic in May 2020 and outpaced anything recorded outside of the initial pandemic outbreak since the series began nearly 13 years ago, the report said.

The indicator–which gauges activity in both the manufacturing and services sectors–suggests that activity contracted in August for the second consecutive month, as the index is below the 50.0 no change threshold.

“Demand conditions were dampened again, sparked by the impact of interest rate hikes and strong inflationary pressures on customer spending, which weighed on activity,” said Sian Jones, senior economist at S&P Global Market Intelligence.

The downturn was led by a steep drop in service sector activity, although production at manufacturers also fell marginally.

The flash U.S. services PMI fell to 44.1 in August from 47.3 in July, missing the 49.0 consensus forecast from economists polled by The Wall Street Journal.

The U.S. manufacturing PMI fell to 51.3 in August from 52.2 in July, its lowest level in two years, signaling subdued operating conditions across the manufacturing sector.

“Lower new order inflows and continued efforts to rein in spending led to the slowest uptick in employment for almost a year,” Ms. Jones said.

Despite weak client demand, private sector firms were more upbeat regarding the outlook for output over the coming 12 months in August, the report said. Manufacturers and service providers recorded greater optimism, as the level of total positive sentiment reached the highest for three months.

One area of reprieve for firms came in the form of a further softening in inflationary pressures, Ms. Jones said. Input prices and output charges rose at the slowest rates for a year-and-a-half amid reports that some key component costs had fallen, the report said.

 

Write to Maria Martinez at maria.martinez@wsj.com

 

(END) Dow Jones Newswires

August 23, 2022 10:20 ET (14:20 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.

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