"US Economy Faces New 'Headwinds'"

The latest data suggests that the U.S. economy may soon face "headwinds," with the risk of inflation accelerating again...

The latest data indicates that the U.S. economy appears to be heading towards another strong quarter of growth, but also points to potential "headwinds" in manufacturing and price pressures.

S&P Global's U.S. Composite PMI index for September was 54.4, down from 54.6 in August, and economists expected the index to drop to 54.3.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated that the data shows the U.S. economy is moving towards a "healthy" growth direction in the third quarter.

In a statement he released, he said, "The sustained strong output expansion signal from the PMI in September is consistent with a GDP growth rate of 2.2% for the third quarter."

After better-than-expected retail sales data in August, economists have been forecasting strong growth for the U.S. economy in the third quarter. As of September 18, the Goldman Sachs economic team has been tracking and expects U.S. GDP for the third quarter to be 3%, while the Atlanta Fed's GDPNow tool shows an annualized growth of 2.9%.

Federal Reserve Chairman Powell also pointed out last week that the still healthy economy is not a reason for rate cuts to lag behind the curve. Powell said, "The U.S. economy is in good shape. It is growing at a solid pace. Inflation is coming down. The labor market is growing strongly. We want to keep it that way."

However, there are also some signs of slowing down in the data released on Monday.

The service sector PMI in the S&P report was 55.4 this month, down from 55.7 in August. At the same time, the manufacturing PMI continued to slow down, dropping to 47, lower than the previous month's 47.9, and the lowest in 15 months. A reading below 50 indicates contraction.

In addition, prices are rising at the fastest pace in six months, and Williamson pointed out that this could raise concerns about inflation.Williamson stated, "Early survey indicators for September suggest that the economy continues to grow at a robust pace, despite significant headwinds from manufacturing weakness and increasing political uncertainty. Meanwhile, signs of accelerating inflation indicate that the Federal Reserve cannot completely divert its attention from inflation targets while trying to sustain economic recovery."

The survey's Future Output Index, which measures optimism about economic output over the next year, also fell to its lowest level since October 2022.

Williamson wrote, "Uncertainty surrounding the U.S. presidential election is dampening business sentiment, demand, hiring, and investment, casting a shadow over the outlook for many companies in the coming year."