The numbers: The U.S. economy improved at the start of the fourth quarter due to slower inflation and fresh hopes that interest rates have peaked, a pair of S&P surveys showed.
The S&P flash U.S. services-sector index rose to a three-month high of 50.9, from 50.1 in the prior month. Most Americans are employed on the service side of the economy.
The S&P U.S. manufacturing-sector index, meanwhile, climbed to a six-month high of 50, from 49.8 in the prior month. The index has been in negative territory since last spring.
The S&P Global surveys are among the first indicators each month to provide an assessment of the health of the economy. Any number above 50 signals expansion, while numbers below 50 point to contraction.
The S&P surveys have consistently shown the economy to be weaker than other measures of U.S. growth, so the latest upswing is a positive sign.
Recent reports on job creation, layoffs and retail sales signal the economy is still growing at a healthy pace.
Key details: Manufacturers reported stronger demand for their goods for the first time since April.
The cost of materials rose at the slowest pace in three years, indicating a further softening of inflation. Businesses said they were prepared to pass on the savings to customers in order to drive sales.
A majority of survey respondents were more upbeat about the next 12 months. Many continued to hire new workers, though at a slower rate.
Big picture: The economy was supposed to slow down because of rising interest rates orchestrated by the Federal Reserve to tame inflation. Instead, growth has sped up since the spring.
Economists expect higher borrowing costs to eventually pinch the economy. Yet as long as unemployment remains low and companies continue to hire, consumers are likely to keep spending — and keep the U.S. out of recession.
Looking ahead: The S&P surveys have “been among the most downbeat economic indicators in recent months, so the upturn in U.S. output growth signaled at the start of the fourth quarter is good news,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“Sentiment has improved in part due to hopes of interest rates having peaked, something which looks increasingly likely given the further cooling of inflationary pressures,” he said.
The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
extended gains in Tuesday trading.
Read the full article here
