The U.S. services PMI expanded for the fourth consecutive month in October, rising from 54.9 in September to 56.0—its highest level since July 2022, according to data released by the Institute for Supply Management (ISM) on November 5.

Business Activity & New orders

In the subindices, the business activity index slightly declined from 59.9 to 57.2, and the new orders index fell from 59.9 to 57.4. However, both indices stayed in expansion territory for the fourth month, reflecting strong demand in the U.S. services sector.

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Employment & Supplier Delivery

The employment and supplier delivery indices also improved, with the employment index climbing from 48.1 to 53.0, reaching its highest level since August 2023. This improvement suggests that previous employment data may have been influenced by short-term factors like hurricanes and strikes. Meanwhile, the supplier delivery index increased from 49.6 to 52.1, likely indicating delayed delivery times due to disruptions from recent storms and port strikes.

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Other indices showed continued expansion, with the prices index marking its 89th consecutive month in growth, while export and import indices slightly softened but remained above 50.

Overall, October’s services PMI offers a solid start for U.S. economic data in the fourth quarter. According to the ISM report, the October services PMI correlates with an annualized real GDP growth rate of 2.3%.

This contrasts sharply with the manufacturing PMI, which was recorded at 46.5 in October, down 0.7 points from the prior month, marking seven consecutive months in contraction. The gap between the services and manufacturing PMIs widened to 9.5 points, underscoring the growing divergence between the two sectors.

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ISM Industry Comments

“Material availability and delivery continues to improve. The port strike had an impact, as we had to divert shipments, but the overall costs are not material. Services cost remains elevated but easier to negotiate.” – Accommodation & Food Services

“Monitoring inventories much closer than in the past. We’re refilling inventories for the fall and winter seasons are lower level than normal, but those decisions are easy to understand.” – Agriculture, Forestry, Fishing & Hunting

“Business is good. Building backlog. Commercial Construction is strong. Commercial Service is busy. All other areas are level.” – Construction

“Hurricane Helene seriously damaged an IV production plant in North Carolina, which was 60 percent of all national supply of IV bag fluid/solution. We are now starting to experience shortages. In addition, two hurricanes hit Florida, which impacted many of our lab vendors. Plus, the port workers’ strike impacts shipments of materials that our (U.S.) labs use to manufacture medicine and medical supplies. We anticipate a rise in prices and longer wait times, and most likely, shortages of some supplies.” – Health Care & Social Assistance

“Sadly, the recent hurricanes/tornadoes, and any future climate-related catastrophes, are good for the equipment sales and rental businesses. That and the continued infrastructure spending.” – Information

“Revenue cycles are lengthening. Good sales, but longer service periods. Commodity pricing is stabilizing as inflation concerns ease. Business is in a steady state, with everyone holding an even keel awaiting U.S. election results.” – Professional, Scientific & Technical Services

“Hurricane impacts have affected supplier deliveries.” – Real Estate, Rental & Leasing

“Port strikes did not impact our supply chain, but we confirmed all our strategic vendors had plans in place should they have an impact.” – Retail Trade

“Business is booming, nothing slowing down. Prices continue to increase slightly.” – Utilities

“The economy is still causing issues within our business and that of our suppliers.” – Wholesale Trade

• October 2024 Services ISM® Report On Business®

China’s manufacturing PMI rebounded into expansion territory, ending a five-month contraction, according to data released by the National Bureau of Statistics on October 31. The October manufacturing PMI reached 50.1, up by 0.3 percentage points from the previous period, exceeding market expectations of 49.9 and signaling an initial recovery in manufacturing activity.

Among sub-indices, all components saw improvements. The production index remained in expansion, rising 1 percentage point to 52, and the new orders index increased from contraction at 49.8 to 50.0. However, inventory, employment, and supplier delivery time indices continued in contraction.

Additional indicators reflected varied conditions, the new export orders index dipped slightly to 47.3, indicating slower global demand, while the producer price index rose 5.9 percentage points to 49.9, reflecting higher raw material costs and a recovery in domestic demand. The raw material purchase price index climbed 8.3 percentage points to 53.4, and the Operation expectations index improved by 2 percentage points to 54.

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In the non-manufacturing sector, October’s PMI came in at 50.2, up by 0.2 percentage points from the prior period. While most key indices improved, only the input prices index reached expansion, with new orders, sales prices, and employment still in contraction territory.

Industry-specific analysis showed the construction sector’s business activity index declined by 0.3 percentage points from the previous month to 50.4, while services edged up by 0.2 percentage points to 50.1. Transportation, capital market services, and public utility management sectors had business activity indices above 55, whereas accommodation, software and IT services, and real estate sectors remained in contraction.

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Overall, large-scale equipment upgrades and policies promoting consumer goods replacement are gradually supporting a recovery in manufacturing. Accommodative monetary policies also bolster manufacturing and services to some extent. China’s National People’s Congress Standing Committee is set to convene from November 4 to November 8, and the strength of any new policies released will be crucial for sustaining demand recovery and meeting the 5% annual GDP growth target.

Last week, Chinese equities continued to reflect the positive effects of easing policies, with the CSI 300 Index surging nearly 9%.In contrast, the U.S. S&P 500 Index saw a modest increase of only 0.22% due to uneven gains across sectors. In the bond market, the yield on the 10-year and 2-year Treasury note rose as expectations for rate cuts receded, narrowing the 10-year to 2-year yield spread to approximately 5 basis points. Meanwhile, the U.S. dollar index climbed to around the 102 level.

Key Economic Data Review for Last Week:

China PMI: China’s manufacturing PMI for September stood at 49.8 (previous: 49.5), marking the fifth consecutive month of contraction. Among the sub-indices, only the production index returned to expansion territory, while the other indices remained in contraction, indicating that China’s overall manufacturing sector continues to face challenges. Meanwhile, the non-manufacturing PMI came in at 50 (previous: 50.3), ending a two-month rebound. All major indices declined in September, reflecting weak consumer demand, which remained subdued even after a brief summer boost.

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U.S. ISM PMI: The U.S. manufacturing PMI for September was 47.2 (previous: 47.4), remaining in contraction for the sixth consecutive month. While the new orders index and production index improved slightly to 46.1 (previous: 44.6) and 49.8 (unchanged), they remained in contraction, reflecting restrictive financial conditions and uncertainty around the upcoming presidential election, which continued to dampen business investment. In contrast, the services PMI increased to 54.9 (previous: 51.5), reaching its highest level since February 2023. Key sub-indices, such as the business activity index and new orders index, rose to 59.9 (previous: 53.3) and 59.4 (previous: 53.0), respectively, marking the third consecutive month of expansion, with both indices showing gains of more than 6%, highlighting strong demand for U.S. services.

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U.S. Employment Situation: The U.S. unemployment rate for September fell to 4.1%,  better than the previous month and the market expectation of 4.2%. Nonfarm payrolls increased by 254,000 (previous: 159,000), significantly surpassing market expectations of 142,000. Employment growth in September was mainly driven by the leisure and hospitality sector, which added 78,000 jobs, and the education and healthcare sectors, which added 81,000 jobs. Additionally, initial jobless claims have shown a downward trend recently, indicating some improvement in the labor market slowdown.

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Key Economic Data Review for This Week:

U.S. CPI (October 10): The annual growth rate of the August CPI was 2.5% (previous: 2.9%), with a monthly growth rate of 0.2% (unchanged). Core CPI, excluding food and energy, remained stable at an annual growth rate of 3.2% (unchanged), with a monthly growth of 0.3% (previous: 0.2%). Both CPI and core CPI growth rates were the lowest since February 2021. According to the Cleveland Fed, September’s CPI is expected to decrease to 2.25% (August: 2.56%), and core CPI is projected to fall to 3.11% (August: 3.21%).

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FOMC Minutes from September Meeting (October 10): Recent data indicate that inflationary pressures have gradually eased, while the labor market shows no significant signs of deterioration. The focus of the minutes will be on the Federal Reserve’s outlook on the labor market and the economy following the recent 50-basis point rate cut.

University of Michigan Consumer Sentiment Index (October 11): The final reading of the University of Michigan’s consumer sentiment index for September was 70.1, up 2.2 points from August, marking a five-month high. The report highlighted growing consumer optimism about the future, with more consumers expecting a Harris victory in the upcoming election. Inflation expectations for one year ahead fell to 2.7% (previous: 2.8%), while the five-year inflation expectation edged up to 3.1% (previous: 3.0%). The market expects the consumer sentiment index to remain around the 70 level in October.

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China’s Manufacturing PMI remained in contraction in September, according to data released by China’s National Bureau of Statistics on September 30.

China Manufacturing PMI was 49.8% in September, showing a slight improvement of 0.7% from the previous month but still below the 50-point mark, indicating a continued contraction in the manufacturing sector. Among the sub-indices, only the production index returned to expansion, while other key indicators remained in contraction, reflecting the ongoing weakness in China’s manufacturing industry.

In the non-manufacturing sector, the Business Activity Index slightly declined from 50.3 in the previous month to 50 in September, halting a two-month rise. By industry, the construction business activity index was stable at 50.7, while the services business activity index fell from 50.2 to 49.9, marking its first contraction this year. All major sub-indices declined in September, pointing to persistently weak consumer demand even after a brief summer stimulus.

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Caixin PMI Also Shows a Slowdown…

Similarly, the Caixin PMI, which focuses more on small and medium-sized enterprises, showed a downturn in both manufacturing and services in September.

The Caixin Manufacturing PMI fell from 50.4 in August to 49.3. The production index remained in expansion but at a slower pace, while the new orders index dropped into contraction, reaching its lowest level since October 2022. The employment index remained in contraction, reflecting continued layoffs as a result of weak new orders. Although import prices decreased due to lower metal costs, weak demand further suppressed output prices.

In the services sector, the Caixin Services Business Activity Index declined from 51.6 in August to 50.3, staying barely in expansion but reaching its lowest point since October 2023. The new business index fell, only slightly above the contraction threshold, while stable external demand kept the export index in expansion. The employment index improved slightly into expansion, driven by new business, though the overall expansion remained weak. Input prices rose due to higher material and labor costs, but weak domestic demand and increased competition put downward pressure on selling prices.

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Overall, continued weakness in domestic demand has led to declining new orders and business across both manufacturing and services, with manufacturing particularly affected. As business activity declines, companies are facing greater pressure to cut labor costs, further suppressing consumer spending. Rising material costs combined with falling product prices are also eroding business confidence in future prospects. Although the Chinese government has implemented substantial monetary easing measures and promised more support if needed, some economists believe that fiscal policies will also be necessary to address domestic demand shortfalls, as recent stimulus measures have had only short-term effects.

Last week, the People’s Bank of China introduced significant easing measures targeting interest rates, the real estate market, and the stock market, leading to a nearly 16% rebound in the CSI 300 Index from its low. Meanwhile, although the S&P 500 had already priced in the Federal Reserve’s 50 basis point rate cut, it continued to hit record highs, buoyed by ongoing gains in tech stocks. In the bond market, the yield spread between the U.S. 10-year and 2-year Treasuries remained steady at around 20 basis points. The U.S. Dollar Index continued its downward trend, consolidating around 100.

Key Economic Data Review for Last Week:

U.S. PCE: The Personal Consumption Expenditures (PCE) index for August increased by 2.2% year-over-year (previously 2.5%) and 0.1% month-over-month (previously 0.2%). The decline in PCE growth was mainly due to falling goods prices, which saw a year-over-year decrease of -0.9% (previously -0.2%), while services prices remained steady with a year-over-year increase of 3.7%. Excluding food and energy, core PCE rose by 2.7% year-over-year, a slight increase from the previous month’s 2.6%.

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China Industrial Enterprises Total Profits: China Industrial Enterprises Total Profits fell by 17.8% year-over-year in August, a sharper decline from July’s 4.1% drop, marking the largest decrease this year. High-tech manufacturing profits, the largest contributor, declined in August, with cumulative year-over-year growth for January to August standing at 10.9% (previously 12.8%). Additionally, profits in mining and consumer goods manufacturing continued to fall due to weak demand, further exacerbating the downward pressure on overall industrial profits.

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Australia Monetary Policy: The Reserve Bank of Australia (RBA) kept interest rates unchanged in its September meeting. The meeting statement indicated that restrictive financial conditions are slowing the economy. While household consumption is expected to rebound in the second half, if the recovery pace falls short of expectations, economic output may remain weak, leading to further slack in the labor market. The RBA also noted that recent data has heightened inflationary risks, and inflation is now expected to return to the target range by the end of 2025 (previously mid-2025).

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Key Data to Watch This Week:

China PMI (September 30): China’s August Manufacturing PMI was 49.1 (previously 49.5), marking the fourth consecutive month of contraction. Nearly all sub-indices declined in August, remaining in contraction territory. Given the still-weak domestic demand and the incomplete impact of monetary policies, the market expects the September PMI to hold steady around 49.5.

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U.S. ISM PMI (October 1): The U.S. Manufacturing PMI for August was 47.2 (previously 47.4). New orders and production indices fell to 44.6 (previously 47.4) and 44.8 (previously 45.9), continuing to reflect the restrictive financial conditions and uncertainties surrounding the presidential election, which have dampened corporate investment. The market expects manufacturing to exhibit uneven recovery, with the September PMI to remain around 47.6.

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U.S. ISM NMI (October 3): The Non-Manufacturing PMI (NMI) for August was 51.5 (previously 51.4). Despite declines in business activity and employment indices, all indices remained in expansionary territory, indicating overall healthy growth in the services sector. With the U.S. holiday season approaching, the market expects the September NMI to hold steady around 51.5, continuing a trend of moderate growth.

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U.S. Employment Situation (October 4): The U.S. unemployment rate for August was 4.2% (previously 4.3%), remaining near historic lows, with nonfarm payrolls increasing by 142,000, within the safe range of 100,000 to 200,000. Additionally, recent initial jobless claims have stopped rising, indicating a slowdown in labor market weakening. Moving forward, it will be important to monitor whether the job market can maintain its current state without deteriorating following the Fed’s rate cuts. The market currently expects the September unemployment rate to stay at 4.2%, with nonfarm payrolls increasing by around 140,000.

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