U.S. private sector business activity continues to expand in September but at slower pace - IHS Markit's survey

Preliminary data released by IHS Markit on Monday revealed that U.S. private sector business activity continued to grow in early September, albeit at a slower pace than in August.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) came in at 60.5 in September, down from 61.1 in August. The latest reading pointed to the slowest expansion in factory activity since April, but marked nonetheless. Economists had expected the reading to increase to 61.5. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. Supply constraints and material shortages dampened output in September. As a result, the rate of growth in production was the slowest for 11 months and lead times lengthened substantially. Meanwhile, manufacturers expanded their workforce numbers at a steeper rate in September, and both new business and export orders expanded robustly, driven by strong demand conditions. On the price front, input costs registered another significant rise, albeit slightly slower than August’s recent high, while the rate of selling price inflation accelerated to the sharpest since data collection began in May 2007 as firms passed higher costs on to their clients.

The Markit flash services purchasing manager's index (PMI) dropped to 54.4 in September, down from 55.91 in the previous month. This was the lowest reading since December 2020. Economists had expected the reading to slip to 55.0. Contributing to the softer advance in activity was a weaker gain in new business. Total sales were also hampered by a quicker drop in new export orders, and one that was the fastest since December 2020. In addition, employment levels were broadly unchanged during September, bringing an end to a 14-month sequence of job creation. On the price front, cost pressures remained historically elevated, as higher supplier prices and raised wage bills following incentives to entice workers pushed costs up. Firms sought to pass on greater prices to their clients through a marked increase in output charges.

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 54.5 in September, down from 55.4 in July. This was the lowest reading since September 2020.

“The pace of US economic growth cooled further in September, having soared in the second quarter, reflecting a combination of peaking demand, supply chain delays and labour shortages,” noted Chris Williamson, Chief Business Economist at HIS Markit. “The slowdown was led by a cooling of demand in the service sector, linked in part to the Delta variant spread. However, while manufacturers have seen far more resilient demand, factories face growing problems in sourcing enough supplies and labour to meet orders. Supply chain delays show no signs of easing, with another near-record lengthening of delivery times in September. Hence factory output growth also weakened and order book backlogs rose at a record pace in September.”