It has been said for longer than any of us care to remember, but the United States is now a post-manufacturing economy. Maybe we aren’t all working in offices or delivering goods or working in bars and restaurants, but the reality is that more and more manufacturing economies have lower wages than the United States. The week of October 28 brought two fresh reads on manufacturing and the non-manufacturing sector, which were stronger than expected — but not in the underlying employment data.
With this coming Friday’s Employment Situation report from the Bureau of Labor Statistics being the last report before the election, 24/7 Wall St. wanted to give two of these reports for the week of October 28 a closer look.
IHS Markit delivered the flash index readings on both sectors. Services have been covered first, but the manufacturing data needs to be considered here as well. What also should be considered is that this is October data, meaning it was not during the third quarter, when GDP beat expectations. We would also point out that the stronger economic reports were countered by a handy and unexpected drop in consumer confidence.
The PMI Services flash reading for October came in above the September reading, at 54.8 in October versus 51.9 in September. Note that this was the strongest reading of 2016.
According to the Services PMI reading, business activity in the services and non-manufacturing areas increased at a robust and accelerated pace in October.
New order volumes rose at the quickest rate so far in 2016 and was accompanied by the strongest business optimism since August 2015. New order growth was shown to have accelerated for the first time in three months.
Price pressure was also seen here, which is inflationary. Input price inflation was shown to be the fastest since May, and service providers indicated that they saw a moderate rise in their average prices to its strongest since November 2015.
IHS Market was cautious on the employment portion of its services report. It said of October:
Despite stronger business activity growth, service providers indicated that cautious staff hiring patterns persisted in October. Measured overall, job creation picked up only slightly from the three-and-a-half year low recorded in September. While some firms sought to boost their payroll numbers in response to rising workloads, there were also reports that efforts to reduce costs had led to the non-replacement of voluntary leavers.
The PMI Manufacturing flash reading rose unexpectedly to 53.2 in October. The September reading was 51.4, and Bloomberg had its consensus estimate at 51.2 for this month’s report, with an Econoday range of 50.9 to 51.7. IHS Markit’s PMI Manufacturing flash index showed the strongest rate of growth since October of 2015.
There was a strength in new orders and in the order backlog. Output was at a year high, and input costs were nearly at a two-year high. Prices realized for sales were up for the first time in three months. Inventories also posted their first gain of 2016.
All in all, what matters is that output and new order growth hit one-year peaks, and manufacturers saw the fastest expansion of input buying since June 2015.
Similar to the services report, manufacturing weakness was also noted. Its report said:
Some firms commented on increased capacity pressures at their plants, in part reflecting subdued job hiring in recent months. Latest data signalled only a moderate rise in payroll numbers, and the rate of expansion was weaker than in September.
What we have seen is a surprise to the upside in manufacturing and in non-manufacturing activity. This was for October, which might on a post-GDP basis lead to the economy having snapped back after weak data late in the summer and after the post-Brexit shock.
Next Friday will bring the final unemployment and payrolls report before the presidential election. This report will be closely watched due to the prior strength having abated in the recent months after years of gains. Stay tuned.