Preliminary
data released by IHS Markit on Friday revealed that U.S. private sector
business activity continued to grow in early October, despite bottlenecks as
services rebound from the Delta wave.
According
to the report, the Markit flash manufacturing purchasing manager's index (PMI)
came in at 59.2 in October, down from 60.7 in September. The latest reading
pointed to the slowest expansion in factory activity since March, albeit one
that was among the strongest on record and sharp overall. Economists had
expected the reading to slip to 60.3. A reading above 50 signals an expansion
in activity, while a reading below this level signals a contraction. Factory output
increased only modestly, with the pace of growth the slowest since July 2020 as
it continued to be hampered by supply chain issues and shortages. In addition, there
was a record lengthening of suppliers' delivery times. The rate of increase in
new orders weakened to the slowest for eight months, but remained solid overall,
supported by strong client demand. On the price front, input costs saw a
further rise in October, which allowed them to surpass August’s record to reach
a fresh series high. Factory gate charges also increased at the fastest pace in
the series history as firms continued to pass greater cost burdens through to
clients.
The
Markit flash services purchasing manager's index (PMI) rose to 58.2 in October,
up from 54.9 in the previous month. This was the highest reading since July.
Economists had expected the reading to increase to 55.1. Driving gain in
October was the fastest rise in inflows of new work since July, which was
commonly attributed to stronger demand conditions as COVID-19 worries eased
during the month. In addition, employment increased at the quickest rate since
June, although some companies reported issues finding candidates and filling
open positions. On the price front, the rate of input price inflation
accelerated to the second-fastest on record, while the rate of increase of output
charges hit an all-time high.
Overall,
IHS Markit Flash U.S. Composite PMI Output Index came in at 57.3 in October, up
from 55.0 in September. This was the highest reading since July.
“October
saw resurgent service sector activity as COVID-19 case numbers continued to
fall, marking an encouragingly strong start to the fourth quarter for the economy,”
noted Chris Williamson, Chief Business Economist at HIS Markit. “Hiring has
likewise picked up as firms have been encouraged to expand capacity to meet
rising demand. However, while manufacturers also continue to report strong
demand, factory production remains plagued by constraints, including record
supply chain bottlenecks and labor shortages. Prices paid by factories for raw materials
rose at yet another new record pace as a result, in turn feeding through to
both higher prices at the factory gate and spilling over into higher service sector
prices. Higher wages are also having to be offered to attract or retain staff,
adding to the inflationary pressures.”