US PMI Crashes Into Contraction In July: “A Worrying Deterioration In The Economy”

July 23, 2022

While US macro data continues to weaken – and on the heels of the eurozone’s unexpected plunge into contraction – analysts still expected flash US Composite PMIs to increase modestly (from 52.3 to 52.4) with manufacturing weaker and services flat. They were very wrong…

S&P Global US Manufacturing July Flash slipped to 52.3 from 52.7 (better than the 52.0 expected) – lowest since Jul 2020
S&P Global US Services July Flash crashed to 47.0 from 52.7 (well below the 52.7 expected) – weakest since May 2020

Source: Bloomberg

Mirroring the eurozone plunge, the US Composite Index plunged into contraction – a 26-month low – signaling a notable contraction in the economy and suggesting a technical recession is imminent…

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

“The preliminary PMI data for July point to a worrying deterioration in the economy. Excluding pandemic lockdown months, output is falling at a rate not seen since 2009 amid the global financial crisis, with the survey data indicative of GDP falling at an annualised rate of approximately 1%. Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook.

“An increased rate of order book deterioration, with backlogs of work dropping sharply in July, reflects an excess of operating capacity relative to demand growth and points to output across both manufacturing and services being cut back further in coming months unless demand revives. However, with companies’ expectations of future growth slumping to the lowest since the early days of the pandemic, any such revival is not being anticipated. Instead, firms are already reassessing their production and workforce needs, resulting in slower employment growth.

“Although supply constraints remained problematic, constraining economic activity, the weakening demand environment has helped to alleviate inflationary pressures. Average prices charged for goods and services consequently rose at a much reduced rate in July, the rate of inflation still running high by historical standards but now down to a 16-month low to provide some much needed good news amid the ongoing cost of living crisis.”

The market has titlted notably more dovish, with a full rate-cut now priced in for Q1 2023…