Wall Street's consensus expectations have once again been upended, as the September US S&P Global PMI flash reading not only defied forecasts of a modest decline but delivered explosive growth across the board.
According to market desk insights, JPMorgan noted in a September 23 research report that the US composite output PMI surged to 58.4, the highest level since July 2021, suggesting US third-quarter GDP growth could reach as high as 4% to 5%. However, beneath this seemingly flawless economic growth scorecard, both Goldman Sachs and JPMorgan see a troubling undercurrent: demand has severely outpaced corporate capacity, triggering the most severe supply chain bottlenecks in nearly two decades outside of pandemic periods. More critically, input cost inflation is accelerating at its fastest monthly pace since 2020, reaching levels not seen since late 2022.
Analysts point out that the current data sends a clear signal—the US economy is not only avoiding recession but is running remarkably hot. Yet this growth, driven by robust domestic demand, is accompanied by sharp increases in energy, transportation, and labor costs. Since the rise in corporate output prices (selling prices) has not kept pace with the surge in input costs, corporate profit margins are facing substantial compression.
Price Pressures Intensify Sharply, Corporate Margins Under Siege
The most dangerous signal in this report lies in the fierce resurgence of inflation. JPMorgan highlighted that September's inflation signals were notably stronger than in recent months.
Soaring input costs: The all-industry input price index recorded its largest monthly gain since 2020, accelerating to its highest level since late 2022. Goldman Sachs data shows the services input price sub-index jumped 7.2 points to 66.1, marking a new high since November 2022; manufacturing input prices, after three consecutive months of decline, rebounded sharply by 3.0 points to 68.1.
Cost drivers: Price increases are primarily attributed to rising fuel and transportation costs stemming from recent energy price hikes, while wage pressures have also intensified. Manufacturing firms specifically cited elevated raw material costs and supply shortages.
Margin compression: Although September output price (corporate selling price) inflation also rose—Goldman Sachs data shows services output prices up 1.2 to 57.0, while manufacturing output prices dipped slightly 0.2 to 59.2—the increase fell far short of the surge in input costs. JPMorgan explicitly noted that this asymmetry indicates corporate profit margins are being squeezed.
Analysts conclude that overall, the September PMI data paints a picture of an economy with robust demand but constrained supply. Behind strong orders and hiring, soaring costs and compressed margins will become core risks that investors must confront in the coming months.
Demand Far Exceeds Capacity, Supply Chain and Labor Bottlenecks Re-emerge
The economic heat has directly exacerbated the supply-demand imbalance. JPMorgan believes current demand continues to outpace corporate operating capacity.
Extreme supply chain tightness: Backlogs of work increased at the fastest pace since May 2022, while supplier delivery times lengthened to the greatest extent since mid-2022. The S&P press release noted that excluding pandemic periods, current growth is accompanied by the most severe supply chain bottlenecks in nearly two decades of survey history.
Hot labor market but difficult hiring: The all-industry employment index in September rose to its highest level since June 2022. Manufacturing employment posted its strongest growth since February 2021, and services hiring also expanded at the fastest pace since June 2022. Despite firms aggressively hiring due to increased workloads and backlogged orders, many report growing difficulty in finding suitable workers.
Economic Activity Explodes Across the Board, Far Exceeding Wall Street Expectations
The September PMI data has completely shattered concerns about an economic slowdown. Goldman Sachs noted that both services and manufacturing PMIs defied expectations by rising, breaking the consensus forecast of a modest decline.
Services PMI: September came in at 58.7, well above the expected median of 56.0 and the prior reading of 56.5, marking the highest level since March 2022. The new business sub-index was particularly strong, rising 3.0 points to 58.3.
Manufacturing PMI: September recorded 57.0, far exceeding the expected median of 53.5 and the previous reading of 53.9, reaching its highest level since May 2022. Both the output sub-index, up 3.6 to 56.7, and new orders, up 3.0 to 57.3, showed sharp increases.
JPMorgan emphasized that the S&P press release estimates the latest survey data aligns with approximately 5% annualized GDP growth and points to third-quarter GDP growth of around 4%, which is even higher than JPMorgan's recently upgraded forecast of 3.5%.
S&P's commentary was blunt: "Excluding the demand surge from the post-COVID lockdown economic reopening, the latest improvement in business activity is the largest recorded since early 2015."
However, Goldman Sachs also cautioned investors about the "nominal bias" lurking behind the data—the strength in some business surveys may stem from respondents measuring shipments and orders in dollar terms (nominal) rather than actual volumes, thereby being distorted by price increases.
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