PMIs Show Increasingly Two-Speed Economy

June's preliminary US PMI report paints a picture of a two-speed economy, wherein services (PMI 54.1, vs 54.0 expected and 54.9 prior) remain strong while manufacturing (46.3, vs 48.5 expected and 48.4 prior) is weakening further.

• Services PMI began exceeding Manufacturing at the turn of the year and hasn't looked back as the latter moves further below the expansionary/contractionary 50 mark.
• Overall the strength in services activity and inflation probably outweighs the weakness in manufacturing in terms of the impact on overall activity and inflation, though the deterioration in employment dynamics is notable.
• A few passages from the S&P Global report underlining these themes:
• On the acceleration in cost inflation: "Following a loss of momentum in May, price pressures gained intensity in June. The rate of cost inflation across goods and services picked up to a robust pace. The reigniting of cost inflationary pressures was driven by the service sector amid increased wage bills....[but] manufacturing firms recorded a further decrease in input prices amid falling raw material prices, which fell at the fastest rate since May 2020."
• Selling prices increased the slowest since Oct 2020, though, largely on a drop in manufacturing selling prices.
• On jobs: "The pace of employment growth ... eased to the softest since January, reflecting a combination of lower demand for staff and poor candidate availability."
• On new orders: "the second-fastest in just over a year. The upturn was entirely driven by service providers, however, as manufacturers reported the sharpest drop in new orders since December, citing weak customer confidence and destocking by clients."
• On confidence: 6-month low for manufacturers amid concerns over inflation and lower sales; but services firms had the strongest positive sentiment since May 2022.