Analysis
US Factories Hit a 53-Month High and Selling Prices Rose the Fastest Since 2022 in October's Flash PMI. Consumers Expect 4.7% Inflation, Four Days Before the Fed
The S&P Global flash manufacturing PMI rose to 56.0 in October, a 53-month high, against 55.5 expected. Selling prices rose at the fastest pace since August 2022. The University of Michigan's final sentiment reading was 48.0, with one-year inflation expectations at 4.7% and long-run at 3.5%, both the highest since May. Futures still price a hold on Wednesday and a likely hike in December. The 10-year yield ended at 4.99%.
Four days before the Federal Reserve meets, the two Friday surveys said the same thing in different voices: the economy is running hot, and so are prices. S&P Global's flash manufacturing PMI for October rose to 56.0 from 55.9, against 55.5 expected, its highest reading in 53 months. The services index slipped to 57.9 from 58.8, just below the 58.0 forecast, and the composite eased to 57.6 from 58.4. Any reading above 50 means activity is expanding, and these are strong numbers by the survey's history. The detail mattered more than the headlines: new orders grew at the fastest pace in more than four and a half years, hiring at the fastest since June 2022, and the prices companies charge rose at the sharpest rate since August 2022. S&P Global's summary was that "the US economy continues to boom at the start of the fourth quarter."
Households described the same inflation from the other side of the till. The University of Michigan's final October sentiment index came in at 48.0, up from the preliminary 46.3 but below September's 48.1 and 10% below a year earlier, a five-month low. Year-ahead inflation expectations rose to 4.7% from 4.6% and long-run expectations to 3.5% from 3.4%, both the highest since May. Buying conditions for durable goods plunged 18% on higher interest rates. "Purchasing power continues to dominate consumer views of the economy," said Joanne Hsu, the survey's director.
None of this moved the Fed's Wednesday decision, which markets treat as settled: a Reuters poll found 94 of 100 economists expect the target range to stay at 3.75% to 4.00%, and CME FedWatch put the odds of an October increase at about 7%, down from 27.7% a week earlier and 55.4% a month ago, according to 24/7 Wall St. The debate is December, where futures priced roughly a 78% chance of a hike on Friday. The 10-year Treasury yield rose about 3.5 basis points to 4.99%, still below 5% after Thursday's drop, the largest one-day fall in more than two years, and down about 9 basis points on the week; the 2-year rose to 4.69%.
Europe's surveys diverged from the American ones. The eurozone composite PMI fell to 51.9 from 53.1, well below the 52.7 expected, with French services back in contraction, while Britain's rose to 53.1 against a 51.8 forecast. In crypto, bitcoin ended the week near $80,750, roughly where it started, after spot bitcoin ETFs lost $635.6 million on Thursday, their largest outflow since June, and about $138 million on Friday, according to The Block and Farside data; the week as a whole still showed net inflows of about $301 million.
The data that can still change the December arithmetic arrive after the decision. Thursday brings the first estimate of third-quarter GDP, where the consensus is 3.0% annualised growth, and the September PCE price index, expected at 3.6% year on year, with the core measure at 3.1%. A PMI showing the fastest price increases in four years is a hint about which way those numbers lean.