Key Takeaways

  • S&P Global said Monday that the services sector drove strong economic growth this month, despite manufacturing stagnation and the upcoming presidential election dampening business confidence.
  • The S&P Global US PMI Composite Output Index edged down slightly in September from August but remained near its highest level since early 2022, with the services sector expanding at the second-fastest pace in the past 29 months. Meanwhile, businesses' expectations for the year aheadfell to a two-year low。
  • "Business confidence, demand, hiring, and investment are being dampened by uncertainty surrounding the presidential election, which is casting a shadow over the outlook for many firms in the year ahead," said Chris Williamson, chief business economist at S&P Global Market Intelligence, in a statement.

Deeper Dive

A softening labor market and downside economic risks prompted the Federal Reserve to cut its key interest rate by 50 basis points on Wednesday to a range of 4.75% to 5%. Policymakersnoted that inflation is easing toward the 2% target from over 9% two years ago。

S&P Global said manufacturing remained in trouble for a third consecutive month in September, with new orders declining and causing the goods-producing sector to contract at the fastest pace since June 2023. The firm cited US manufacturing PMI data released on Monday.

"Some warning lights are flashing, especially the economy's reliance on the services sector—with manufacturing continuing to contract, coupled with a worrying decline in business confidence," Williamson said.

However, Minneapolis Fed President Neel Kashkari said in an article published Monday thatsome economic data are encouraging。

"The economy continues to send mixed signals about its underlying strength," he said, noting that while the labor market is cooling, "other economic indicators show continued resilience."

Kashkari cited examples such as GDP growth "and consumer spending continuing to show surprising resilience, suggesting underlying demand remains solid."

The Atlanta Fed said Wednesday that the economycould expand at a 2.9% annualized rate in the third quarter. According to data from the Bureau of Economic Analysis, GDP grew at an annualized rate of 1.4% in the first quarter,and 3% in the second quarter。

Atlanta Fed President Raphael Bostic said Monday that conflicting economic data require central bank officials to be cautious as they seek tofulfill their dual mandate(ensuring price stability and maximum employment).

"There remains some uncertainty about whether both our inflation and employment goals can be fully achieved," Bostic said in a speech. "The path of inflation in 2024 has been bumpy, and the unpredictability of rents and home prices still worries me."

According to the median of projections released by the Fed on Wednesday, officials expect to lower the federal funds rate to 4.4% by December and to 3.4% by the end of next year.

Chicago Fed President Austan Goolsbee said in key points from a "fireside chat" in Chicago on Monday that the central bankis far from ending its easing monetary policy。

Regarding the September 18 rate cut, Goolsbee said, "The timing of the first cut matters less than the longer-term perspective—that both sides of the (Fed's) dual mandate are in good shape."

"If we want this situation to persist, interest rates will need to come down significantly in the future," he said.