US flash services PMI for October drops to 57.9, missing 58.0 forecast

• The earlier services PMI stood at 59.8.
• Manufacturing reached 56.0, beating the forecast of 55.5.
• That manufacturing reading had been 57.0 in the prior month.
• The composite index fell to 57.6 from 58.4 a month earlier.
• Selling prices saw their steepest rise since August 2022.
• New orders hit their highest level in more than four-and-a-half years.
• Business output expectations for the coming twelve months eased from September but still were the second highest this year.

The jump in this survey was one of the biggest surprises last month, something markets considered hawkish at the time. Employment hit its highest since June 2022, and input cost inflation reached its most elevated 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.

Should the Fed treat this report seriously, it would be raising rates next week. While in theory it serves as a good forward-looking indicator at the edge of leading indicators, in practice it has been mediocre at forecasting economic momentum in the post-covid period.

Each month, S&P Global issues flash estimates of its US Purchasing Managers’ Indexes for manufacturing and services at 9:45 am ET, usually about a week before the month closes. The flash figures are built from roughly 85% of survey responses, offering one of the earliest pictures of US business conditions. Final data arrive in the first days of the following month and rarely differ much from the flash.

The indexes are diffusion measures derived 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 combines five sub-indexes: new orders, output, employment, suppliers’ delivery times and stocks of purchases. The services headline figure is the business activity index, based on a single question about activity levels. The two feed into a composite output index, providing a broad view of private-sector growth.

The sub-indexes are often more revealing than the top-line numbers. Input prices and output prices, or prices charged, offer an early gauge of cost pressures and how much firms are passing them to customers, making them closely watched for inflation signals. Employment, new orders, export orders and business expectations provide extra detail on demand and hiring.

The ISM surveys hold a longer history and a broader following, and the S&P Global PMIs usually shift markets less, even if the two can deliver different readings. Where the S&P data have the advantage is in timeliness and cross-country alignment. Eurozone, UK, Japan, Australia and India all get their flash PMIs on the same day, offering a synchronized global view that lets traders weigh US momentum against other large economies.