US economy near stalling point as consumer demand weakens

New York: U.S. business activity approached the stagnation point in August, with growth at its weakest since February as demand for new business in the vast service sector contracted, Reuters reported.

S&P Global said its flash U.S. Composite PMI index, which tracks manufacturing and service sectors, fell to a reading of 50.4 in August from 52 in July, the biggest drop since November 2022. 

While August’s reading was the seventh straight month of growth, it was only fractionally above the 50 level separating expansion and contraction as demand weakened for both manufactured goods and services.

For months, a strong labor market and resilient consumer spending has increasingly assuaged fears of recession, and led to upward revisions of GDP growth forecasts. But the latest data painted a more tepid picture about the economy.

Service sector business activity growth was the slowest since February at 51.0 in August, and the Manufacturing PMI fell deeper into contraction territory at 47.0 down from 49.0 in July, the fourth straight month of contraction.

The data was worse than expected, with economists polled by Reuters predicting that the services index would be 52.2 and the manufacturing index would be 49.3.

“A near-stalling of business activity in August raises doubts over the strength of U.S. economic growth in the third quarter. The survey shows that the service sector-led acceleration of growth in the second quarter has faded, accompanied by a further fall in factory output,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Consumer demand posed a substantial drag on revenue for firms, as new business and orders contracted for firms across all sectors. New business in the service sector declined for the first time in six months, falling to 49.2 from 51.0 the month prior.


Spike in US bond yields impacting capital flows to markets like India

New Delhi: A sharp spike in US bond yields is impacting capital flows to emerging markets like India, says V. K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

There are two dominant factors influencing equity markets now.

One, the resilient US economy is supporting global growth and global equity markets; this is a positive. Two, the sharp spike in US bond yields (the 10-year yield at 4.34 per cent is the highest since 2007) is impacting capital flows to emerging markets like India; this is a negative for Indian markets, he said.

Sustained rise in FII inflows will happen only if the US bond yields decline. Clarity on this will emerge only after trends in US inflation and the Federal Reserve’s monetary stance indicate softening.

Investors should wait for clarity on these macro trends, he added.

Image courtesy of Mint

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