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The latest IHS Markit US Sector PMI™ indicated a slowdown in
growth across four of the seven sectors tracked, led by the
technology sector. This was consistent with the broad picture
whereby the US remained adversely affected by the ongoing COVID-19
Delta wave, despite the decline in case numbers in recent weeks.
Meanwhile the US bond market has shown signs of converging with
economic conditions.
Technology sector led slowdown in output growth in the
US
US Sector PMI™, compiled by IHS Markit, showed that all seven
broad categories monitored by the surveys expanded in September,
although four saw growth slow when compared to August. The decline
in growth momentum had been the most apparent for the technology
and consumer service sectors, with the former falling to a 14-month
low.
On the other hand, pandemic-related demand continued to support
the healthcare sector. Basic material output growth also
accelerated as firms sought to counter the ongoing supply
crunch.
Taking a big-picture view of the US Sector PMI data, one would
find that the broad slowdown had been a couple of months in the
making. Arguably, the decline takes place from a point of very
strong growth by historical standards. However, the pace at which
growth momentum had eased had been rapid and especially so for
heavyweights such as the technology sector. This places the focus
on how the upcoming earnings season would fare for the broader
market.
Weighting the US Sector PMI data in accordance to the US S&P
500 index sector composition, and proxying for sectors where the
Sector PMI data does not have an exact match for, the resulting
indicator suggests that earnings growth momentum has peaked and
will moderate moving into late 2021. This is consistent with the
Street's view whereby FactSet polls pointed to Q3 2021 EPS growth
at 27.6% ahead of the start of the season. At the same time, this
perhaps contributes to some of the concerns within the equity
market, particularly in backing how the softer earnings growth
might affect
shareholder returns and fundamentals moving forward. (An update
on US equity investor sentiment will be available mid-October
through the PMI
commentary and analysis page.)
US Treasury yields climb with inflation
worries
Separately, US Treasury yields had been capturing the market's
attention amid the recent bond market sell-off. The US 10-year
Treasury yield can generally be seen moving in tandem with the IHS
Markit Manufacturing PMI, reflective of economic conditions. That
close relationship appears to have broken down since 2020, however,
with bond yields suppressed amid the Fed's interventions and
reassurances. Some of this optimism has dulled with the Fed moving
towards imminent tapering, while above-target inflation has fanned
fears that elevated consumer prices may be less transitory that
earlier expected.
While the 'transitory' outlook towards inflation continues to
hold for now, the expectation remains one of the Fed being on the
path, albeit a long one, towards eventual lift-off that could keep
Treasury yields biased upwards. Alongside the easing of the
elevated growth momentum signalled by the PMI, we may continue to
find attempts at convergence between yields and the PMI going
forward.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
