Last month, an unusual level of controversy surrounded the US services index releases: the ISM and the S&P Global purchasing managers’ index (PMI) were pointing in opposite directions. In all likelihood, this means one of them is wrong. A figure below 50 suggests the service sector is generally contracting, while a number above 50 suggests that it is expanding. The S&P Global US Services PMI registered 43.7 in August, while the Services ISM was a far more optimistic 56.9.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, argues that the fall in petrol prices is rapidly lifting spending power, and expects retailers can look forward to a “decent holiday” season as a result. He suggests that the divergence in the indices could be due to the S&P survey being conducted earlier in the month – this means good news may not have had time to filter through. New figures released on 5 October will be hotly anticipated.
More PMIs to watch out for next week include US, Eurozone and CIPS UK manufacturing on Monday, followed by UK services on 5 October. The Eurozone services PMI will be released on Monday 5 October, followed by EU retail sales on Tuesday. The services index showed a mild contraction last month, leading Ricardo Amaro, senior economist at Oxford Economics, to argue that “the boost from the lifting of public health restrictions has now run its course”. He expects to see the European service sector worsen over the months ahead, with downward pressure from new business flows and muted year-ahead expectations.
Japanese inflation figures will be released on 3 October, and CPI of 2.9 per cent is worlds away from the US situation. US inflation surprised on the upside last month, when CPI rose to 8.3 per cent. But it was the increase in core inflation from 5.9 per cent to 6.3 per cent that troubled markets most. Core inflation strips out the impact of more volatile food and energy prices, and its upward climb suggests that the Fed might have to act more forcefully to get inflation under control.
The BLS releases its update on the employment situation on 7 October, providing a clearer indication of domestic inflationary pressures. Figures on hourly earnings and the unemployment rate will test the temperature of the still-hot US labour market.
