Global Economy Slows As PMI Manufacturing and Services Decline

Posted Saturday, June 24, 2023 by
Skerdian Meta • 2 min read

The global economy has been showing signs of weakness for about a year, as central banks keep raising interest rates to levels we haven’t seen before. This has led to a slowdown in consumer spending and has turned investor sentiment negative. The manufacturing and services reports from around the globe showed a further slowdown in June, with manufacturing activity continuing to remain in recession.

Flash US PMI Manufacturing and Services Surveys

Manufacturing and services PMIs

  • US June flash S&P Global services PMI 54.1 points vs 54.0 expected
  • Fifth consecutive improvement in services
  • Prior was 54.9 points
  • Manufacturing 46.3 points vs 48.5 expected
  • Composite 53.0 points vs 54.3 prior
  • Services new orders grew at a strong rate
  • Full report

The manufacturing and services PMIs are headed in opposite directions. The services upturn was led by strong customer confidence and new client acquisitions, according to S&P Global.

In terms of services inflation, this isn’t what the Fed wants to hear:

“Service sector firms registered a quicker rise in input prices at the end of the second quarter. The rate of cost inflation was the steepest for five months, as companies stated that greater wage bills in particular placed further pressure on business expenses. Conversely, companies sought to remain competitive and drive sales which led to a slower uptick in output charges during June”

Commenting on the US flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

“The overall rate of expansion of business activity in the US remained robust in June, consistent with GDP rising at a rate of 1.7% to put second quarter growth in the region of 2%.
“Growth remains dependent on service sector spending, however, with manufacturing slipping back into decline after three months of growth. While improving supply conditions had helped boost manufacturing production in prior months, an increasingly severe downturn in new orders mean factories are running out of work.
“The situation is brighter in the service sector, where demand is proving resilient and the recent pause in rate hikes appears to have helped boost business optimism for the year ahead.
“The question remains as to how resilient service sector growth can be in the face of the manufacturing decline and the lagged effect of prior rate hikes. Any further rate hikes will of course have a further dampening effect on this sector which is especially susceptible to changes in borrowing costs.
“The tightness of the labor market remains a concern, and upward wage pressure remains a key driver of higher costs in the service sector. However, it is encouraging to see the overall rate of selling price inflation for goods and services drop to the lowest since late 2020 in a sign that the Fed is winning its fight against inflation.”

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