The preliminary PMI of the United States in April fell short of expectations across the board, and the manufacturing industry was only 49.9, indicating obvious inflationary pressure

After the hot job market and economic data have repeatedly cut interest rate cut expectations, the market is finally waiting for bad news for the US economy, which is good news for the prospect of rate cuts.

On Tuesday, April 23, S&P Global released data that:

• The U.S. manufacturing PMI fell below the boom-and-bust line in April, with a preliminary reading of 49.9, well below the expected value of 52 and the previous value of 51.9 in March, the lowest level since December 2023.
• The performance of the service sector, which contributes more to the economy, also fell short of expectations, with the preliminary reading of 50.9, still above the boom and bust line, but significantly worse than the expected value of 52 and the previous value of 51.7 in March, hitting a five-month low.
• The composite PMI remained in expansion territory, although the preliminary reading of 50.9 was lower than expectations of 52 and the previous reading of 52.1 in March. The composite PMI fell 1.2 points in April, the biggest drop since August last year.

In terms of important sub-indices, in the composite PMI data, the orders sub-index showed a contraction for the first time in six months, the employment sub-index showed that the number of jobs contracted for the first time since 2020, falling by 3.2 points in a single month to 48, due to the contraction of employment in the services sector and the slowdown in the growth of the manufacturers segment, and the price index retreated from a 10-month high.

Media analysis pointed out that the decline in employment indicators indicates that companies believe that the current capacity is sufficient to cope with demand. The order backlog for the month is still in contraction territory. New business from service providers shrank for the first time since October, with some companies saying rising borrowing costs and prices remaining high, limiting demand.

Chris Williams, chief business economist at S&P Global Market Intelligence, commented in the PMI report:

U.S. economic activity lost momentum at the start of the second quarter, with PMI survey respondents reporting below-trend business activity growth in April. Further progress may be lost in the coming months. New business inflows fell in April for the first time in six months, and companies' expectations for future output fell to their lowest level in five months amid heightened concerns about the outlook.

If the lockdown phase of the early days of the pandemic is excluded, the more challenging business environment has prompted companies to cut headcount at a rate not seen since the global financial crisis.

As for inflation, which is highly concerned by the market, the April data confirms this trend, following the acceleration of price increases in March:

It is important to note that the drivers of inflation have changed.

Prices rose more sharply in the manufacturing sector in three of the last four months, with factory cost pressures intensifying in April due to higher raw material and fuel prices, in contrast to price pressures dominated by the wage-related services sector for much of 2023.

The chart below shows the various price sub-indices of S&P Global PMI data:

Zerohedge, a financial blog, commented that slow growth combined with faster inflation does not sound like a recipe for interest rate cuts, but in fact it is the opposite.

After the release of the data, the market paid more attention to the slowdown in economic growth shown by the headline data, and the reaction was dovish:

The U.S. dollar index fell about 30 points to 105.75 in the short term. U.S. stocks extended gains, with the Nasdaq extending its gain to 0.9% and the S&P 500 rising 0.7%. The U.S. 10-year Treasury yield was lower at 4.603%.

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