Executive summary:
The United States manufacturing and service PMI both recovered in October and is in an expanding region. Prior to the recovery in manufacturing PMI, the United States manufacturing output had increased by 0.4 per cent in September. In the United States, both manufacturing and services have rebounded, and the underlying driving forces have been driven by far greater than expected consumption. The US Epidemic Grant, out of the job boom last first half of the year, has become the driving force behind America ' s high consumption. Recruitment has been strong and high in consumption, and the Fed's interest rate increase has largely ended.
I. United States manufacturing and service PMI both rebounded in October and is in an expanding region
The recently released PMI Index of Purchasing Managers, which measures economic performance, shows that the economic performance of the United States in October was better than expected, that both manufacturing and services were in expansion, and that the economy showed unexpected resilience after a significant and sustained increase of 5.25 per cent over 20 months. Economists believe that all of this is due to the United States Government's unhesitating decision to increase government debt during the epidemic and to direct money to citizens to stabilize consumption expectations. Because consumption in September was over-anticipated, it was the main reason for the expansion of manufacturing and services in October.
According to the latest Standard & Poor ' s data, the United States ' initial PMI value for Markit manufacturing was 50 in October, an increase of 0.2 percentage points from September, the first time that the United States manufacturing industry had returned to an expansion zone since the sixth month of April.
At the same time, the service PMI in the United States is still expanding, rising back to 50.9 percentage points, up 0.8 percentage points from 50.1 in September. The data also exceeded expectations, with a prior general consensus predicting that the index would fall to 49.9. The report states that services activities in the United States have risen to their highest level in three months.
Chris Williamson, the chief business economist of Standard & Poor ' s Global Market Intelligence, said that, with the expectation that the Fed ' s austerity cycle had ended, consumer enthusiasm in the United States had stood the test of 20 months of interest hikes, and robust consumption had driven market activity out of the shadow of interest hikes, which had begun to increase significantly.
In his report, he stated: “The hope for a soft landing of the United States economy will be encouraged by the improved situation in October. In recent months, the Standard & Poor ' s Global PMI survey has been one of the most pessimistic economic indicators in the United States. But the pessimistic data ended in October, and optimistic data began to appear. Thus, signs of a better output growth in the United States at the beginning of the fourth quarter are encouraging news.”
II. United States manufacturing output grew by 0.4 per cent in September before the recovery in manufacturing PMI.
The return of the US-based S&P manufacturing PMI to the expansion zone is not independent good news. Prior to September, manufacturing output in the United States had also grown over expectations.
In a Federal Reserve report dated 24 October, the Federal Reserve disclosed that the industrial production ring had increased by 0.3 per cent in September, higher than the 0.1 per cent expected. The level of capacity utilization or potential output rose slightly to 79.7 per cent, or 0.1 percentage points higher than expected.
Most major consumer markets recorded different ring increases in September. The ring of consumer durables increased by 1.2 per cent and all the categories under its classification; the index of non-conservation remained unchanged, as the rise in chemical product output was offset by a decline in energy commodity output; production of commercial equipment decreased by 0.7 per cent, but output of defence and space equipment increased by more than 1 per cent in September for the fifth consecutive month; and in materials, the ring of non-energy durables increased by 0.8 per cent.
In industrial production, manufacturing output grew by 0.4 per cent in September, while car parts continued to be suppressed by a continuing strike by three car manufacturers, car and spare parts output increased by 0.3 per cent; elsewhere in manufacturing, wood, primary metals, plastics and rubber products increased by more than 1 per cent or more, and clothing and leather and printing and support products increased by 1 per cent or more. Other manufacturing (publication and logging) output declined slightly by 0.2 per cent.
The United States mineral output grew by 0.4 per cent in September, the fourth consecutive month. In the third quarter, mine production increased by 6.9 per cent over the same period. The utilities index fell by 0.3 per cent in September, but increased by 15.2 per cent in the third quarter on a year-on-year basis.
The United States manufacturing capacity utilization increased slightly by 0.1 percentage points to 77.8 per cent in September, but was 0.4 percentage points lower than the long-term (1972-2022) average, with greater scope for recovery. Work in the mining sector rose by 0.5 percentage points to 95.1 per cent, 8.7 percentage points above the long-term average. As a result of government expenditures, the start-up rate for utilities fell by 0.4 percentage points to 72.7 per cent, well below its long-term average.
iii. Double-up in manufacturing and services in the United States, with underlying drivers of consumption much higher than expected
The United States model of economic development is a typical consumption-driven model of economic growth. The growth in consumption has led to the expansion of enterprises, the expansion of enterprises, the growth of investment and labour recruitment, the growth of jobs and the growth of consumer capacity, and further increases in consumption. This is a sustainable model of economic growth.
Consumers in the United States showed surprising strength in September, and retail sales were much higher than expected, despite high interest rates and concerns about economic weakness.
According to a forecast released by the United States Department of Commerce on 24 October, the retail sales ring grew by 0.7 per cent in September, well above the expectation of 0.3 per cent of the Dow Jones Index. The sale of gas stations helped to boost the overall figure, and the energy retail ring ratio rose by 0.9 per cent as the price of gas stations accelerated.
Sales, excluding cars, grew by 0.6 per cent, well above the expected 0.2 per cent. The so-called control group, which eliminates car dealers, gas stations, office stores, mobile houses and tobacco stores, etc., also increased by 0.6 per cent in the calculation of GDP in the sector.
These figures are not adjusted for inflation, but they indicate that consumer spending far exceeds the pace of price increases. Because the overall inflation rate in the United States increased by 0.4 per cent in September.
Compared to the same period last year, sales in the United States increased by 3.8 per cent in September and exceeded the CPI growth of 3.7 per cent per year, one of the strongest annual increases since February.
All three retail sales reports from different sectors in the third quarter of the United States were higher than expected, which demonstrated the ability of United States consumers to sustain strong consumption spending and drive economic growth after they began not to rely on epidemic subsidies in the last year, after what economists estimate is a run-off of so-called super-savings. This gives us hope to see strong US GDP data later this month.
Sales in the United States grew widely in September, with the largest increase being by 3 per cent for retail retailers in miscellaneous stores; online sales grew by 1.1 per cent over the ring; vehicle parts and distributors grew by 1 per cent over the ring; food services and drinking sites grew by 0.9 per cent over the same period, leading by all categories.
Only a few categories of sales declined in September, such as electronics and electronics stores and clothing retailers, which dropped by 0.8 per cent on average this month.
Retail sales reports reflect six months of growth in consumption in the United States, reinforcing the fact that United States consumers as a whole do not show signs of spending cuts, which provide the engine of growth for most economies. Despite the Fed ' s attempts to cool down expenditure and recruitment, this expenditure remains.
IV. US Epidemic Subsidy, out of a hot job boom in the first half of last year, has become the driving force behind America ' s high consumption.
This round of high consumption in the United States, which originated in the United States ' response to the epidemic ' s impact in 2020, increased government debt, and sustained spending of tens of thousands of dollars on epidemic subsidies to United States citizens, allowed United States consumption to be sustained by the impact of the epidemic, and thus led to a sustained realization of the stability and output produced by United States enterprises.
The fate of expenditure depends to a large extent on labour market conditions. After more than two years of a cycle, even though the United States Government completely withdrew from the epidemic subsidy cycle in the first half of 2022, with high employment rates, wages exceeding inflation, strong purchasing power of American consumers was maintained, consumer spending was growing and driving the economy forward, and all American recessions were calmed down.
At the time of the publication of the retail sales report, businesses in the United States economy intensified their recruitment efforts in September, ignoring the soaring interest rates and the continuing threat of government closures. The level of recruitment surprised economists inside and outside the Fed.
In September, United States employers increased by an alarming 336,000 jobs, again exceeding economists' expectations, while unemployment stabilized at a low of 3.8 per cent. Another report released earlier this month indicates that the number of vacancies in the United States in August rose unexpectedly to 9.6 million, although they are well below the historical high of 12 million created in the spring of 2022.
Retail sales continue to be surprising as the fire in the labour market does not cool. Economists say that the performance of the economy during the holiday season will be key to understanding its trajectory in the first months of 2024.
In a statement, Brian Field, Global Retail Advisory and Analysis Manager of Retail Data Analysis, Sensormatic Solutions, stated that he expected that the current holiday season would be “symmetrical” for United States retailers, except in extreme weather.
Goldman Sachs published its latest expected report on 24 October, following the publication of retail data in the United States, and concluded that growth in the United States might remain strong in the third and fourth quarters, while rising the economic outlook, and that the company now expects that GDP in the United States will accelerate at an annual rate of 4 per cent in the third quarter, an increase of 0.2 percentage points from the previous 3.8 per cent.
Thus, the bet on the US recession this year has collapsed.
V. Strong recruitment and high consumption, and the Fed ' s interest-rate plan is almost over
While consumption remains high, corporate recruitment continues to be strong, and the manufacturing and services economies are expanding, there is good reason to believe that the Fed has ended its interest rate hike. This is because:
First, price index reports indicate that price pressures have begun to cool down and that inflation concerns have eased.
In September, the CPI ratio in the United States rose by 0.4 per cent, down 0.2 percentage points from 0.6 per cent in August; the same rate rose by 3.7 per cent, the same as in August. The current sales price increase is close to the long-term average before the outbreak, in line with the Fed ' s goal of reducing overall inflation to near 2 per cent in the coming months. The Fed is also aware that the 2 per cent target seems to be met only in the event of a contraction in consumption, and that it is unlikely that they will continue to press their consumption in pursuit of an absolute 2 per cent.
Second, the impact of the interest rate hike on economic cooling is lagging.
In the United States, the PPI pre-indicator for CPI is close to the Fed ' s target of 2 per cent. In the United States, the PPI increased by 2.2 per cent and the ring by 0.5 per cent in September. In general, PPI price trends are transmitted to CPI with a lag of 1-2 months.
Third, the delayed impact of the decline in rent on the CPI.
The housing index measures mainly the hidden rental value of rentals and home-owned properties, and occupies a larger weight in CPI and the core CPI.
According to United States economists, housing costs (rents) as measured by the consumer price index should eventually begin to decline as a result of the substantial decline in housing prices (excluding the CPI) caused by the Fed ' s interest rate hike. This is due to the fact that CPI rent calculations are clearly lagging behind real time and do not show recent declines. But it's only a matter of time (a few months). Once this happens, the United States CPI is only one step away from the Fed ' s target of 2 per cent.
The Fed also acknowledged in a report that the United States core CPI had risen only 0.1 per cent in September and 2 per cent in comparison with the same year. This is the lowest annual increase since March 2021.
While economic data are still strong, market pricing assumes that the Federal Open Market Commission is almost certain that there will be no interest rate hikes at that time, with a 34 per cent probability of an implicit interest rate increase in December, based on futures market pricing indicators from Chiffon.
Suh Sanro