The latest S&P Global Preliminary Flash Composite Purchasing Managers Index (PMI) hit a level of 45 as of August 22nd from 47.7 in July.
The slowdown in business activity was the fastest on record since May 2020, when the pandemic shutdown first took hold, according to S&P Global. This indicates that the activity index has declined for five consecutive months and has been in contraction territory for two consecutive months.
Levels above 50 indicate expansion, while levels below 50 indicate contraction, according to S&P Global.
“The data certainly point to a recession at the moment,” said Sian Jones, senior economist at S&P Global Market Intelligence. It’s definitely going to be a difficult business environment.”
Western Bank economist Scott Anderson said the drop in the new-orders component of the index shows service providers are pulling back amid a growing likelihood that the U.S. economy will slip into recession.
The contraction is particularly acute among firms in the service sector, S&P Global Services Business Activity Index and landing at 44.1 in August from a reading of 47.3 in July. The manufacturing index fell from 52.2 in July to 51.3 in August, the lowest level in two years.
But rising interest rates are just one of several factors, said Kaylin Birch, global economist at the Economist Intelligence Unit.
Persistent high inflation is reducing consumers’ ability to spend, and ongoing logistics delays and shortages of supplies caused by the war in Ukraine have contributed to lower production, she said.
“We expect the impact of rising interest rates to be more pronounced over the next six months,” she wrote in an email to CNN Business.
Despite the decline, companies surveyed by S&P Global were more optimistic about their business performance over the next 12 months than they were three months ago.
According to Thursday’s report, “confidence stemmed from increased customer demand and expectations that advertising and marketing campaigns would bring in new customers.” The level of optimism was below the set of trends because
S&P Global’s final August PMI data for services and manufacturing will be released on September 1 and September 6, respectively.