Macro

UK: Business activity in the UK experienced its weakest month in August since January 2021, according to S&P Global/CIPS. The Flash UK PMI Composite Output Index declined from 50.8 in July to 47.9, marking the first drop since January. New orders also fell for the second consecutive month in a row.

EU: Early results from a survey of purchasing managers conducted by S&P Global suggest that business activity in the eurozone is likely to have contracted for a third consecutive month. The Purchasing Managers’ Index (PMI) for manufacturing improved slightly from July to 43.7 but remained well below the 50 threshold, suggesting a decline. Additionally, the PMI reading for the services sector fell below 50. The HCOB Flash Eurozone Composite PMI Output Index, which combines data from both sectors, fell to a 33-month low of 47.0 from 48.6 in July.

The Bundesbank’s monthly report projected that German economic output would remain “largely unchanged” in the three months ending September 30. Such a scenario would result in zero growth for two consecutive quarters. While private consumption recovery is expected to continue, the central bank pointed to a possible anemic industrial production due to weak foreign demand.

In August, German companies showed increased pessimism. The Ifo Institute’s Business Confidence Index fell to 85.7 for the fourth month in a row, reaching its lowest level since October 2022.

US: The University of Michigan’s final August consumer sentiment reading, released on Friday, dipped slightly from July’s nearly two-year high. This decline may have been influenced by higher inflation expectations due to recent gas price increases. However, the study’s chief researcher highlighted that “consumers remain supported by strong income expectations,” particularly among lower-income consumers. The labor market’s resilience was underscored by the weekly jobless claims report, showing 320,000 claims, the lowest in three weeks.

Durable Goods Orders data released on Thursday indicated increased business caution in certain sectors. Excluding defense and transportation sectors, a proxy for business investment, durable goods orders rose 0.1% in July but were outweighed by a revised 0.4% decline in June. S&P Global manufacturing activity index fell more than anticipated in August, largely reversing July’s sharp rise and moving further into contraction territory.

The housing sector displayed greater strength, with new home sales in July reaching their highest level since early 2022, despite higher mortgage rates. Freddie Mac on Thursday reported the highest 30-year fixed-rate mortgage since 2001. Existing home sales, however, fell short of expectations.

Federal Reserve Chair Jerome Powell addressed these mixed signals in his speech at the central bank’s annual symposium in Jackson Hole, Wyoming on Friday. Powell acknowledged that higher rates had slowed industrial production and wage growth, while tighter bank lending standards had a cooling effect on the economy. He also noted that economic growth remained above its long-term trend and pointed to a recovery in the housing sector. Powell concluded that despite uncertainties, they relied on the available information.