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Economic Report: “An economy struggling in a stagflationary environment”, says S&P Global on U.S. business activity

The numbers: U.S. companies said business activity perked up in September largely because of an increase in new customer orders, but high inflation and lingering supply shortages posed obstacles to growth prospects.

The S&P Global U.S. manufacturing sector index edged up to 51.8 this month from a two-year low of 51.5 in August, based on a “flash” survey.

The flash U.S. services sector index, meanwhile, climbed to 49.2 from 43.7. It was the first increase in six months. The index had fallen to the lowest level since mid-2020 in the prior month.

Readings above 50 signifies expansion; below that, contraction.

“ “The surveys continue to paint a broad picture of an economy struggling in a stagflationary environment.” ”

— Chris Williamson, chief business economist at S&P Global Market Intelligence.

Big picture: The U.S. economy has softened and it’s likely to continue to do so in the face of rising interest rates. The Federal Reserve is making it more expensive to borrow money to try to slow the economy and bring down the highest inflation in 40 years.

Key details: New orders, a sign of future sales, rebounded in September for both manufacturers and service-oriented companies such as retailers.

Order backlogs are on the low side, however, in a sign that growth is unlikely to speed up a lot. Exports have especially taken a big hit because of a strong dollar that’s made U.S. goods more expensive for foreign customers to buy.

Businesses continued to add new workers, meanwhile, in another positive sign.

The cost of supplies, a measure of inflation, also fell again. As a result, companies were less aggressive in raising their own prices, the surveys showed.

And shortages of supplies, a big problem during the pandemic, eased again.

These shortages were one of the biggest contributors to the U.S. and global surge in inflation. While they are starting to fade, they remain a big problem.

Looking ahead: “The surveys continue to paint a broad picture of an economy struggling in a stagflationary environment,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Market reaction: The Dow Jones Industrial Average
DJIA,
-1.41%

and S&P 500
SPX,
-1.71%

sank again in Friday trades, extending a recent losing streak.

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