US business activity raced to a more than five-year high in September, fueled by a surge in new orders, though strong demand strained supply chains and pushed prices higher.
S&P Global said on Wednesday its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 58.4 this month. That was the highest level since July 2021 and followed a reading of 56.0 in August.
A reading above 50 indicates expansion in the private sector. The rise in the PMI reflected strong gains in both the services and manufacturing sectors. The PMI was consistent with the economy growing at around a 5% annualized rate, SP Global said. It also noted a sharp rise in work backlogs and supply chain delays, “pointing to a lack of operating capacity which fed through to higher prices.”
The Atlanta Federal Reserve’s gross domestic product tracking estimate is running at a 5.1% rate. The economy grew at a 1.5% pace in the April-June quarter.
“Business is clearly booming now in both manufacturing and services,” said Chris Williamson, chief business economist at SP Global Market Intelligence. “However, this growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history if the pandemic is excluded.”
The supply constraints mostly stem from the US-Israeli war with Iran, now in its seventh month.
Strong demand adding to inflation
Chicago Fed President Austan Goolsbee said on Monday supply
shocks were proving more persistent, adding there was evidence
that strong demand was now adding to the problem. That view was
supported by the findings of the SP Global survey.
The survey’s measure of new orders received by businesses
raced to 58.2, the highest reading since March 2022, from 55.2
in August. The increase was across both services and
manufacturing industries. Incomplete orders, a key indicator of
capacity utilization and future business growth, increased to
the highest level since May 2022.
Though companies across manufacturing and services sectors
boosted hiring to tackle the order backlog, SP Global also
noted increasing reports of problems finding suitable staff.
“While this accumulation of uncompleted orders bodes well
for the further expansion of output and capacity in the coming
months, it also indicates that companies are developing more
pricing power, and hence is a worry for the inflation outlook,”
said Williamson.
The survey’s gauge of prices paid by businesses for inputs
jumped to 66.4, the highest reading since October 2022, from
59.9 in August. Both services and manufacturing businesses
reported higher input prices. SP Global noted that high raw
materials prices in manufacturing were also often linked to
supply shortages. It said suppliers’ delivery times lengthened
considerably on average, “with the incidence of supply chain
delays the most widespread since July 2022.”
A measure of prices paid increased, with the sharpest gain
in the services sector.
Further gains are likely as record high diesel prices will,
among other things, boost the cost of transporting goods. The
Federal Reserve last week raised its benchmark overnight
interest rate by 25 basis points to the 3.75%-4.00% range and
flagged more hikes in the coming months.
Source: Khaleej Times