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The latest S&P Global preliminary flash composite purchasing managers index, or PMI, stood at 45 as of August 22, down from 47.7 in July.
The pace at which business activity slowed was the fastest on record since the pandemic shutdown first took hold in May 2020, S&P Global reported. This indicates that the activity index has been in contraction territory for five consecutive months and a second consecutive month of declines.
Levels above 50 indicate expansion, while levels below indicate contraction, according to S&P Global.
Sian Jones, senior economist at S&P Global Market Intelligence, said: “The data shows a slowdown at the moment. “Obviously, we’ll have to wait and see how it goes, but it’s definitely going to be a challenging business environment going forward.”
The fall in the new orders index shows that service providers are pulling back as the U.S. economy deepens into recession, Bank of the West economist Scott Anderson said in a note published Tuesday.
The contraction was particularly deep among service sector companies; with the S&P Global Services Business Activity Index Accommodation 44.1 in August, down from a reading of 47.3 in July. The manufacturing index fell from 52.2 in July to 51.3 in August – a two-year low.
But rising interest rates are only one of many factors at play, says Cailin Birch, global economist at The Economist Intelligence Unit.
Persistently high inflation is eroding consumers’ spending power, and logistical delays and material shortages caused by the war in Ukraine are contributing to the decline in production, she says.
“We expect rising interest rates to be felt sharply over the next six months,” she wrote in an email to CNN Business.
Despite the downturn, businesses surveyed by S&P Global were more optimistic about business activity over the next 12 months than they were three months ago.
“Confidence stems from strong customer demand and acquisition of new customers through advertising and marketing campaigns,” according to Thursday’s report. “That said, the level of optimism was below the trend line as companies anticipate a challenging few months ahead.”
S&P Global’s final August PMI for services and manufacturing data is scheduled for release on September 1 and September 6, respectively.
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