U.S. economic activity unexpectedly shrank in July, according to a preliminary survey of purchasing managers compiled by S&P Global on Friday (22), a sign that the economic outlook is improving amid rising inflationary pressures and weaker demand for goods and services. deteriorating rapidly.
U.S. Markit PMI report for July:
- The initial value of the manufacturing PMI was reported at 52.3, slightly higher than market expectations of 52, and the previous value was 52.7, a 25-month low
- The initial value of the service PMI was reported at 47, far below market expectations of 52.6, and the previous value was 52.7, a 26-month low
- The initial value of the composite PMI was reported at 47.5, the previous value was 52.3, a 26-month low
Data shows that the U.S. composite PMI and the initial value of the service industry PMI both fell below the 50 line of prosperity and decline in July. High inflation and weak demand weighed on sales.
Notably, the service sector accounts for regarding 70% of U.S. gross domestic product (GDP), and the data this time does not bode well for the economic outlook and might lead to a contraction in economic growth in the third quarter.
In addition, although the initial performance of the manufacturing PMI was slightly higher than expected, it was still lower than the previous value, mainly due to the decline in new orders, which was the slowest increase in two years.
Disappointing macroeconomic data might fuel fears that the broader economy is heading for a hard landing amid tightening financial conditions. The tightening in financial conditions was triggered in part by the Federal Reserve’s aggressive interest rate hikes to stabilize inflation. While summer is usually a quieter season, heightened uncertainty might exacerbate market volatility in the short term.
On the price front, the cost burden remains heavy, but gains have slowed from May’s highs, suggesting that inflation may be regarding to ease. That assumption might allow the Fed to turn to a more dovish monetary policy stance later this year, especially if growth conditions continue to deteriorate. In addition, the Fed’s shift in stance might be a decisive inflection point for risk assets, setting the stage for a sustainable recovery in U.S. equities.
Overall, today’s downbeat data report raises the odds of a mid-term recession. While it is true that the strength of the labor market has offset some serious fears of an economic downturn, the important thing is that employment indicators are a barometer of sluggish business activity and a late reaction to the new situation, meaning they may give traders a chance to disagree. Investors are sending the wrong signal.
Market Reaction
U.S. stocks opened volatile on Friday, withNasdaqThe index is subject to Snap (SNAP-US),Twitter (TWTR-US), which was followed by a downbeat earnings report. Before the deadline,Dow Jones Industrial AverageIt fell 40 points or 0.13% to temporarily report 32,077.09 points;Nasdaq Composite IndexDown 105.34 points, or nearly 0.9%, at 11,954.31;S&P 500 IndexIt fell nearly 0.2% to temporarily report 3,990.75 points;Philadelphia SemiconductorThe index fell 1.7% to temporarily close at 2,867.47 points.
U.S. 10-year Treasury yieldfell to 2.801%,US dollar indexfell to 106.23,goldIt was up nearly 1 percent at $1,729 an ounce.
