WASHINGTON – US business activity increased to a 20-month high in October, but the pace of new business growth and new orders eased slightly amid the lingering COVID-19 pandemic and caution ahead of the Nov. 3 presidential election.
Data firm IHS Markit said its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, rose to a reading of 55.5 this month. That was the highest since February 2019 and was up from 54.3 in September. A reading above 50 indicates growth in private sector output.
It said some manufacturers and service industry companies noted the coronavirus crisis had weighed on demand. The survey found other companies said a number of clients were holding back on placing orders until after the fiercely contested race to the White House between Republican President Donald Trump and former Vice President and Democratic Party candidate Joe Biden.
Growth in foreign client demand also slowed “notably,” with manufacturers reporting a renewed contraction in new export orders, IHS Markit said.
Despite the reported pick-up in business activity, economists are predicting slower economic growth in the fourth quarter after what is believed to have been a record performance in the third quarter, thanks to a more than $3 trillion rescue package early this year for businesses and the unemployed.
But the fiscal stimulus is gone and new COVID-19 cases are rising around the country, which could lead to state and local government restrictions or more people shunning establishments like restaurants and bars, and undercut consumer spending.
The survey’s flash composite new orders index dipped to 54.3 this month from a reading of 54.8 in September.
Still, confidence among businesses is steadily improving.
The survey’s flash services sector PMI rose to 56 this month, a 20-month high, from a reading of 54.6 in September.
Economists polled by Reuters had forecast a reading of 54.6 this month for the services sector, which accounts for more than two-thirds of U.S. economic activity.
A measure of new businesses in the services sector dropped to 54.3 from a reading of 55.0 in September.
Manufacturing was steady this month. The survey’s flash manufacturing PMI inched up to a reading of 53.3 from 53.2 in September. Economists had forecast the index for the sector, which accounts for 11.3 percent of the economy, rising to 53.4 in October. A measure of new orders received by factories increased to a reading of 54.2 from 53.6 in September.
The National Association of Realtors this week reported U.S. existing home sales surged in September to levels not seen in more than 14 years. With so much of Americans’ wealth tied up in the home they live in, that offers a welcome financial buffer in a decidedly uncertain economic moment.
It has also been a boon for builders, who are as confident as they’ve ever been, the National Association of Home Builders reported this week, as they rush to meet the demands of a severely under-supplied housing market. Indeed, single-family housing starts are proceeding at the fastest clip in 13 years.
But the gains in home sales were concentrated in the higher end of the market, which is fine for people with stable jobs who have been able to snag houses, but first-time buyers or those looking for affordable homes may be priced out of the market.
“While this has helped push home prices higher and improved equity positions for existing homeowners, it has created a challenging market for buyers, especially those shopping in the more affordable end of the market,” said Andy Walden, an economist and director of market research at Black Knight. —Reuters