Key Takeaways
- The US S&P Global Services PMI for October finalized at 54.8, falling below the 55.2 estimate and the previous reading of 55.2, yet still signaling solid growth in the service sector.
- The US S&P Global Composite PMI for October registered 54.6, missing the 54.9 estimate and down from the previous reading of 54.8, but still indicating continued expansion in overall private sector activity.
- Despite the expansion, business confidence reached a six-month low due to ongoing economic and political uncertainty, contributing to modest hiring growth.
- Selling price inflation eased to its lowest level since April, suggesting some moderation in price pressures despite persistent elevated input costs from tariffs and employee expenses.
The U.S. private sector continued its expansion in October, with both the services and composite Purchasing Managers' Index (PMI) readings indicating sustained, albeit slightly softer than estimated, growth. The final S&P Global (SPGI) US Services PMI settled at 54.8 for October, missing the consensus estimate of 55.2 and matching the previous month's flash reading of 55.2. However, this represents an acceleration from September's final Services PMI of 54.2.
Similarly, the S&P Global (SPGI) US Composite PMI, which encompasses both manufacturing and services, came in at 54.6 in October. This figure was below the 54.9 estimate and the previous flash reading of 54.8, but still marked an improvement from September's final Composite PMI of 53.9. The rise in overall activity was supported by solid increases in new business growth across both sectors.
Business Confidence Wanes, Hiring Remains Subdued
Despite the ongoing expansion, a notable concern emerged in the form of declining business confidence. Optimism among firms fell to a six-month low in October, attributed to persistent economic and political uncertainty. This subdued outlook translated into only modest hiring growth, as companies expressed reluctance to significantly expand their workforces.
Chris Williamson, chief business economist at S&P Global Market Intelligence (SPGI), noted that October's data suggests the U.S. economy entered the fourth quarter with strong momentum. He added that the current rate of business activity growth is commensurate with an annualized GDP increase of approximately 2.5%, following a solid expansion signaled for the third quarter.
Inflationary Pressures Show Signs of Easing
On the inflation front, there was some positive news. Selling price inflation in the services sector eased to its lowest level since April. This moderation occurred despite businesses continuing to face elevated input cost pressures, driven by factors such as tariffs and rising employee expenses. Both input and output prices for the composite index also saw slight reductions, although they remain at moderately elevated levels.
The rebound in the composite PMI to these levels has historically been consistent with an annualized GDP growth of around 3%. However, the correlation between PMI and GDP has been weaker in the post-COVID era. Analysts suggest that the Federal Reserve may still consider interest rate cuts, particularly given that employment growth continues to lag behind the pace of economic activity.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.