Daily Economic Update

US: Powell remains non-committal about future rate cuts, seeing risks to both employment and inflation. Fed Chair Powell, in a speech, remained non-committal about future interest rate cuts, mostly rehashing his previous message, saying “near-term risks to inflation are tilted to the upside and risks to employment to the downside — a challenging situation.” He reemphasized that the tariffs’ effect on inflation would likely be “one-time pass-through”, with the impact so far being somewhat delayed and less than expected. Other Fed officials, Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee, in separate comments, struck similarly cautious tones about further monetary easing given inflation concerns. However, Governor Michelle Bowman renewed her calls to cut rates sooner, underlining the “risk of already being behind the curve in addressing deteriorating labor market conditions.” Meanwhile, growth in business activity in September slowed as the S&P Global flash PMIs eased to 52 from August’s 53 for manufacturing and to a still solid 53.9 from 54.5 for services due to a softer demand environment. Firms were worried about tariff-driven higher input costs but saw a limited ability to pass these on to customers amid milder demand and rising competition, leading to squeezed margins. Positively, the survey’s job gauge stayed in expansion territory for the seventh month, albeit with moderating gains versus the previous month. Based on recent indicators and signs of resilient consumer activity, the underlying economy seems to be holding up well notwithstanding weakening employment conditions and trade volatility. However, the trajectory over the coming months could alter if the slowdown in the job market picks up pace and layoffs rise from current modest levels.

Eurozone: September’s flash PMI figures indicate a cautiously improving outlook. The HCOB flash composite PMI edged up to 51.2 from 51.0 in August, marking the ninth consecutive month of growth and the fastest pace in 16 months. This suggests that overall business activity is expanding, though momentum remains modest. The services sector led the expansion, with its PMI rising to 51.4, the highest in nine months, while manufacturing slipped back into contraction territory at 49.5, down from 50.7 in August. Notably, new orders stagnated, highlighting lingering concerns about the sustainability of the recovery. Meanwhile, inflationary pressures eased further, with both input and output prices rising at slower rates, supporting the European Central Bank’s current wait-and-see approach on monetary policy. Overall, the data suggests that the Eurozone economy is showing some signs of stabilization, but sustained, broad-based momentum has yet to emerge.

UK: Growth in business activity cools more than expected on broad-based softness. The S&P Global flash composite PMI in September dropped to a four-month low of 51 from August’s one-year high of 53.5. While manufacturing deepened its 12-month-long slump to 46.2 from 47 in August, the expansion in services activity moderated to 51.9 from August’s 16-month high of 54.2. The survey highlighted businesses’ concerns about subdued demand, margin compression, a muted local economic environment, and weak export conditions besides elevated cost increases amid wage pressure. All this resulted in employment declining for the 12th straight month. The upcoming Autumn budget on November 26 is expected to deliver further fiscal consolidation steps amid worsening public finances, which may have also weighed on businesses’ mood and could remain the case over coming months. However, the latest economic indicators, such as consumer spending, have pointed to a decent growth outcome for Q3, with the Bank of England last week upgrading its GDP growth forecast to 0.4% q/q (0.3% in Q2) from 0.3% earlier.   

Japan: Composite PMI declines in September as manufacturing PMI leads the fall. Flash estimates show the S&P Global composite PMI fell to 51.1 in September from 52.0 in August but remaining in expansion territory for the sixth consecutive month. The manufacturing PMI disappointed, falling well short of consensus expectations of 50.2 at 48.4 in September as factories reported their quickest output reduction since March. The services PMI also fell in September, declining for the second consecutive month to reach 53.0 but remaining in expansion territory as services companies still experienced a solid increase in overall sales figures. That increase was mainly driven by domestic sales as services exports shrank for the third consecutive month.

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