U.S. August S&P PMIs - Manufacturing loses momentum, Services surprisingly strong
August’s preliminary S and P PMIs show a contrast between an unexpected slowing in manufacturing, to 53.2 from 53.9, but surprising strength in services is probably more significant, with a rise to 56.8 from 54.6. The composite rose to 56.0 from 54.5.
The manufacturing index is the weakest since March and contrasts impressive strength in August data from the Empire State and Philly Fed manufacturing surveys, this after failing to match a strong acceleration in July’s ISM manufacturing index. On balance the manufacturing sector still looks healthy, supported by AI-related investment, but the S and P data suggests that some recent surveys may have overstated the picture. July’s ISM strength may not be extended.
The services index, which slipped below neutral in March, has accelerated sharply since then, particularly in the last two months, and is now at its highest since a matching December 2024. This is not easy to explain and the index is not well correlated with the ISM services index, which has been fairly stable in the year to date, though at healthy levels, meaning that both services surveys are now presenting a positive message. We see the S and P services index as sensitive to interest rate expectations, though if the latest bounce is a response to fading expectations of Fed tightening it is quite an impressive one.
