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Latest S&P Global PMI results signal lingering inflation 

The index reflects whether business activity and prices are contracting or expanding — which impacts Fed policy and ultimately rates

The latest S&P Global U.S. purchasing managers index (PMI) numbers are out, and the results are mixed at best — indicating that inflation is abating some but is far from tamed.

The composite output PMI index came in at 49.3 for September, up from 44.6 in August, signaling a softer, marginal decline in private-sector business activity. An index score above 50 indicates business activity is expanding while a reading below 50 indicates it’s contracting.

“The decrease [in September] was … the slowest in the current three-month sequence of contraction,” S&P Global’s analysis of the results states.  “Although manufacturers continued to register a slight fall in production, service providers signaled a much slower pace of decline in output.”

The S&P Global U.S. PMI is based on a survey of some 800 companies in the manufacturing and services sectors. The data offer market observers an important insight into the direction of inflation and recession concerns “as it reflects whether industries are growing or shrinking, as well as supply and demand,” according to financial advisory firm Mortgage Capital Trading.

As expected, the Federal Reserve’s Federal Open Market Committee this week, in an effort to combat rising inflation, announced in a unanimous vote a decision to raise the federal funds rate by 75 basis points, to a target range of 3% to 3.25%. The Fed projects that benchmark rate will rise to 4.4% by year’s end, which signals at least one more 75 basis point bump ahead — with two more Fed policy meetings slated for this year.

Further, according to the Fed’s projections, unemployment is expected to hit 3.8% this year, up from 3.7% as of August, and rise to 4.4% in 2023. The S&P Global PMI results for September are not likely to help dissuade the Fed from staying the course with its aggressive monetary policy, which is driving up mortgage rates as well, creating major headwinds for the housing industry.

The interest rate for a 30-year fixed mortgage jumped 27 basis points week over week, to 6.29%, according to Freddie Mac’s latest Primary Mortgage Market Survey current as of Sept. 22. MCT projected Friday morning, Sept. 23, that mortgage rates “will likely be under upward pressure” again “given early trading levels.”

Chris Williamson, chief business economist at S&P Global Market Intelligence, said including the September PMI results, U.S. companies have now recorded a third consecutive monthly decline in output, but he also points out that the rate of contraction — an indicator of the direction of future inflation — moderated in September, compared with August.

“There was also better news on inflation, with supplier shortages easing to the lowest since October 2020, helping take some of the pressure off raw material prices,” he added. “These improved supply chains, accompanied by the marked softening of demand since earlier in the year, helped cool overall the rate of inflation of both firms’ costs and average selling prices for goods and services to the lowest since early 2021. 

“Inflation pressures nevertheless remain elevated by historical standards and, with business activity in decline, the surveys continue to paint a broad picture of an economy struggling in a stagflationary environment.”

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