US Manufacturing Activity "Unexpectedly" Soars To Highest Since 2022

Summary:

One month after unexpectedly sliding into contraction for the first time in 2025, moments ago the S&P Manufaturing PMI even more unexpectedly soared from 49.8 to 53.3, not only smashing expectations of another decline to 49.7 and printing well above the highest economist forecast and in fact printing 7-sigma above the median estimate...

... but was the highest print since May 2022! According to S&P's PMI report, the surge signaled "a renewed improvement of factory business conditions after a brief deterioration in July."

At the same time the S&P Services PMI declined from last month's red hot 55.7 to 55.4, but still beat estimates of 54.2. As a result, the composite PMI of US business activity grew at the fastest rate recorded so far this year in August, rising to 55.4 from 55.1, matching the previous post-covid high from Dec 2024 and adding to signs of a strong third quarter. Output has now grown continually for 31 months, with the latest two months seeing the strongest back-to-back expansions since the spring of 2022.

According to the report, growth was seen across both manufacturing and service sectors of the economy. Hiring also picked up. Most notably, job creation reached one of the highest rates seen over the past three years as companies reported the largest build-up in uncompleted work since May 2022.

Some more details:

● Production rose for a third successive month, rising at a pace not recorded since May 2022, buoyed by the largest influx of new orders since February 2024.

● Factory employment meanwhile rebounded after a decline in July to register the largest payroll gain since March 2022. Inventories of inputs also rose sharply after a drop in July.

● That left only the suppliers delivery times index acting as a drag on the PMI (reflecting faster deliveries), but to a lesser degree than in July.

● Backlogs rose at an unchanged and therefore joint-steepest rate since May 2022 in the services economy, while manufacturing backlogs also rose to the greatest extent in over three years.

● While many manufacturers reported improved sales and demand, the upturn in production and order inflows was in part linked to renewed inventory building. Stocks of finished goods rose to an extent not previously recorded since data were first available in 2007, while stocks of purchased inputs showed the second-largest rise seen for over three years.

● While stock building was partly fueled by expectations of rising demand, some factories also reported increased safety-stock building amid fears of supply shortages or to protect against further price rises, in turn reflecting the recent impact of import tariffs.

There was more good news when it comes to jobs: employment rose for a sixth successive month, with the pace of job creation hitting the highest since January (and one of the strongest rates seen for over three years). Service providers took on staff at the fastest pace for seven months while factory job gains reached the highest since March 2022. Companies largely took on additional staff in response to rising backlogs of work. Uncompleted orders rose for a fifth consecutive month, rising in August at a pace unsurpassed since May 2022 reflecting stronger demand and near-term capacity constraints at some companies.

There were some concerns on the price side, with tariffs reported as the key driver of further cost increases in August. Companies across both manufacturing and service sectors collectively reported the steepest rise in input prices since May and the second-largest increase since January 2023. Rates of increase accelerated in both sectors. While the manufacturing cost rise was especially large, being the second-steepest since August 2022, the service sector increase was the second-highest since June 2023. Average prices charged for goods and services rose at the sharpest rate since August 2022 as firms passed higher costs on to customers. Although goods price inflation cooled slightly for a second month in a row, it remained among the highest seen over the past three years. Service sector price inflation meanwhile was the sharpest since August 2022.

Business confidence in the outlook also improved but remained much weaker than seen at the start of the year as companies reported ongoing concerns over the impact of government policies, especially in relation to tariffs. Tariffs were again widely cited as the principal cause of sharply higher costs, which in turn fed through to the steepest rise in average selling prices recorded over the past three years.

Commenting on the report, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said that the "strong flash PMI reading for August adds to signs that US businesses have enjoyed a strong third quarter so far. The data are consistent with the economy expanding at a 2.5% annualized rate, up from the average 1.3% expansion seen over the first two quarters of the year."

“Companies across both manufacturing and services are reporting stronger demand conditions, but are struggling to meet sales growth, causing backlogs of work to rise at a pace not seen since the pandemic-related capacity constraints recorded in early 2022. Stock building of finished goods has also risen at a survey record pace, linked in part to worries over future supply conditions."

“While this upturn in demand has fueled a surge in hiring, it has also bolstered firms’ pricing power. Companies have consequently passed tariff-related cost increases through to customers in increasing numbers, indicating that inflation pressures are now at their highest for three years."

As a result, the economist concludes that the "rise in selling prices for goods and services suggests that consumer price inflation will rise further above the Fed’s 2% target in the coming months. Indeed, combined with the upturn in business activity and hiring, the rise in prices signaled by the survey puts the PMI data more into rate hiking, rather than cutting, territory according to the historical relationship between these economic indicators and FOMC policy changes.”

In other words, the report coming unexpectedly strong, may be just an attempt by the traditionally anti-Trumpian S&P to pressure the Fed into maintaining a hawkish bias even as the labor market - at least as measured by most other 3rd parties - continues to deteriorate.

Source: Zero Hedge

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James Whitman

Economic

Key points:

● July nationwide core CPI +3.1% yr/yr, versus +3.0 forecast

● Index excluding fresh food, fuel rises 3.4% yr/yr in July

● Solid GDP data, trade deal bolstering the case for rate hikes

● Poll shows nearly two-thirds of economists expect Q4 rate hike

Japan's core inflation slowed for a second straight month in July but stayed above the central bank's 2% target, keeping alive market expectations for another interest rate hike in the coming months.

The nationwide core consumer price index (CPI), which excludes fresh food items, rose 3.1% in July from a year earlier, government data showed on Friday, faster than a median market forecast for a 3.0% gain.

The rise was smaller than the 3.3% increase in June, due largely to the base effect of last year's rise in energy prices, which came from the termination of government subsidies to curb fuel bills.

A separate index that strips away both fresh food and fuel costs - closely watched by the BOJ as a measure of domestic demand-driven prices - rose 3.4% in July from a year earlier after increasing by the same rate in June.

Rising food and raw material costs have kept Japan's core inflation above the Bank of Japan's 2% target for well over three years, causing some BOJ policymakers to worry about second-round price effects.

The BOJ last year exited a decade-long, massive stimulus and raised short-term interest rates to 0.5% in January on the view Japan was close to durably hitting its 2% inflation target.

While the bank revised up its inflation forecasts last month, Governor Kazuo Ueda has stressed the need to tread cautiously on further rate hikes, due to an expected hit to the economy from U.S. tariffs.

The Japanese economy has been showing resilience even though sweeping U.S. tariffs are dragging down exports.

Last week's unexpectedly strong second-quarter gross domestic product data, combined with a U.S.-Japan trade deal struck last month, has fuelled market expectations that a tariff-driven recession will be averted - bolstering the case for another rate hike later this year.

Some analysts also point to Washington's pressure for more rate hikes, following rare and explicit comments from U.S. Treasury Secretary Scott Bessent who said the BOJ was "behind the curve" on policy.

The latest Reuters poll showed 63% of economists surveyed this month expect the central bank to raise base borrowing costs to at least 0.75% from 0.50% by the end of this year, an increase from 54% in last month's poll.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

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Manuel

Economic

China–U.S. Trade War

The hit to New Zealand confidence caused by global uncertainty will fade as businesses get used to a time of heightened economic policy unpredictability, the chief economist at the country’s central bank said on Friday.

Paul Conway, chief economist at the Reserve Bank of New Zealand, said the confidence shock will pass and business will “just get on with it.”

"I fully expect uncertainty to persist into the future but to some extent, we get used to it,” Conway told Reuters in an interview. "We can't sort of wait and see what's going to happen…forever," he said.

He added the central bank’s decision to cut the cash rate by 25 bps this week to 3.0% and flag further cuts was encouraging businesses to get on with it.

At its decision on Wednesday, the central bank highlighted weakness in both consumer and business confidence and the impact that this was having on spending as being one factor of concern for the economy. Governor Christian Hawkesby has said the impact of this uncertainty had been greater than the bank thought.

The U.S. has placed a 15% tariff on goods being imported from New Zealand, which was worse than the 10% initially signalled but not as bad as many other trading partners.

Conway said the changes to tariff rates were creating uncertainty and that is like “another shock on top of the tariff in the first place.”

“Those types of factors are ... causing businesses to be a little more reticent, households to be a little more reticent and that's perfectly rational,” he said.

The central bank decision to cut by 25 bps was not unanimous with two of the six board members voting to cut by 50 bps.

Conway said one member was "particularly keen" on a hold but ultimately the committee decided only to vote on cutting.

He said the member thought a hold at 3.25% might be a good idea as high frequency indicators were showing some improvement and inflation is nearing the top of the target range.

The member was concerned it "could sort of morph into more persistent inflation pressure," he said.

Source: Reuters

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James Whitman

Economic

Central Bank

Federal Reserve Bank of Chicago President Austan Goolsbee said while some recent inflation readings have come in better than expected, he hopes one “dangerous” data point is just a blip.

“We’ve had some inflation reports that came in milder than we expected, and I was feeling good,” Goolsbee said Thursday in an interview with Bloomberg Television on the sidelines of the Fed’s annual conference in Jackson Hole, Wyoming.

“The last inflation report that came in, where you saw services inflation — which is probably not driven by the tariffs — really start shooting up,” he said. “It’s a dangerous data point, I’m hoping that that’s bit of a blip.”

The Fed’s September policy gathering “feels to me like it’s a live meeting,” he said.

The central bank has held interest rates steady this year, citing elevated uncertainty over the impact of tariffs on the economy. Fed Chair Jerome Powell will deliver a much-anticipated speech Friday, and investors will be listening for any hints on what policymakers may do next month.

Earlier this month, Goolsbee said the economic outlook remained mixed, and the bank would need to wait for more data before adjusting interest rates. He is a voting member on the FOMC this year.

Goolsbee’s comments come as the Fed faces heightened scrutiny from the Trump administration amid public calls to lower interest rates. The president called this week for Fed Governor Lisa Cook to resign, amid allegations that she committed mortgage fraud. Cook has said she won’t be bullied into stepping down.

In a separate interview with the Wall Street Journal, Boston Fed President Susan Collins suggested it might be appropriate to cut interest rates in September if labor market conditions weakened more than inflation risks increased.

Source: Bloomberg

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Manuel

Central Bank

Stocks

US stocks slid on Thursday after disappointing Walmart (WMT) earnings and hotter-than-expected jobless claims data, as focus tightened on the Federal Reserve's closely watched gathering at Jackson Hole.

The Dow Jones Industrial Average (^DJI) fell more than 0.3%, while the S&P 500 (^GSPC) moved down more than 0.4%. The tech-heavy Nasdaq Composite (^IXIC) also dropped over 0.3%.

A continued slide in Big Tech stocks is still a worry, even after the Nasdaq on Wednesday showed signs of a reprieve, coming firmly off session lows as buyers jumped in. Short sellers have reaped over $5 billion from bets against techs as AI fears rippled through markets.

Dimmed rate-cut hopes are also weighing on minds after minutes from the Fed's July meeting signaled that sticky inflation rather than a faltering labor market is the main concern for policymakers. There was broad support for holding rates steady, despite a growing divide at the Fed. Meanwhile, more policymakers indicated this week that they don't necessarily view a rate cut as imminent.

Amid that rate debate, jobless claims for the week ending Aug. 15 rose to 235,000, versus expectations for 225,000. Continuing claims jumped to 1.97 million, a notch above the 1.96 million anticipated by economists.

Meanwhile, manufacturing activity rose to its highest level in three years in August. S&P Global's flash US composite PMI survey, which captures activity in both the services and manufacturing sectors, increased to 55.4 from 55.1 in July.

Earlier, Walmart (WMT) capped the week's earnings from retail giants, raising its full-year forecast for sales and profit after second quarter results showed a low-price pushis drawing in shoppers. But its quarterly profit fell short of high expectations, and its shares slid more than 4%.

The Fed kicks off its Jackson Hole symposium of central bankers from around the world later on Thursday, with the countdown on to Chair Jerome Powell's highly anticipated speech on Friday. The gathering is taking place as President Trump puts public pressure on the Fed, most recently calling for Fed Governor Lisa Cook to resign. Cook has said she won't be "bullied to step down".

Source: Yahoo Finance

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Manuel

Cryptocurrency

Stocks

State Street launched its first digital debt securities using JPMorgan’s Digital Debt Service, executing a $100 million commercial paper transaction.

According to an Aug. 21 statement, State Street Investment Management purchased the commercial paper for its Short Term Investment Fund.

The debt securities are issued, settled, and serviced using blockchain technology, delivering streamlined institutional market access.

State Street Investment Management’s global head of cash management, Pia McCusker, described the commercial paper investment as demonstrating tangible technology benefits for institutional clients.

McCusker added: “Our successful investment in the first commercial paper transaction in blockchain format for our Short Term Investment Fund demonstrates the tangible benefits this technology brings to our clients and positions them at the forefront of the digital transformation in fixed income markets.”

Regarding JPMorgan’s blockchain platform, it allows T+0 settlement as an option, representing a significant advancement over standard settlement cycles for short-term debt instruments.

The digital debt securities utilize smart contracts to automate payments, redemptions, and corporate actions, eliminating manual processing typical in traditional debt markets.

State Street noted that the $100 million transaction validates blockchain technology’s capacity to handle institutional-scale debt issuances. At the same time, it maintains regulatory compliance and security standards expected from traditional debt markets.

Market modernization impact

Chief product officer Donna Milrod characterized the digital debt launch as advancing State Street’s integrated blockchain-based solution across front-, middle-, and back-office functions.

Further, the launch reflects State Street’s digital strategy, incorporating on-chain wallet management and blockchain network interoperability groundwork.

JPMorgan Markets Digital Assets Team credit lead Emma Lovett described the digital debt platform as a significant advancement in digital issuance evolution. It provides clients with opportunities to explore blockchain applications in capital markets for efficiency improvements. The technology unlocks ecosystem-wide efficiencies across bond lifecycles.

The digital debt launch follows February reports that State Street was considering crypto custody services for institutional investors.

A bank executive indicated that State Street planned to roll out crypto custody services next year, with the institution positioning itself alongside other major custody banks entering digital asset services.

State Street’s blockchain-based debt issuance represents concrete progress toward digital asset integration beyond speculation about future custody offerings.

Source: Cryptoslate

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Manuel

Economic

China–U.S. Trade War

Official government data is starting to show what anyone looking for work has known for months: the labor market is getting tough for job seekers.

The latest red flag came Thursday when the Department of Labor said 1.97 million people were collecting unemployment insurance the week ending Aug. 9, the highest since November 2021. The Job Market Is Hitting The Skids, Data Shows_1

The Job Market Is Hitting The Skids, Data Shows_1

Several economists pointed to the data as evidence that President Donald Trump's tariffs are starting to become a serious drag on the economy.

Company executives have told surveyors they're shelving hiring plansbecause of uncertainty about how the wide-ranging import taxes will affect prices and business outlook. Companies that import materials and products must decide how to pay for the extra costs imposed by tariffs, and for some, trimming payrolls is the answer.

“It’s very tough to find a job right now, regardless of your age or experience," Heather Long, chief economist at Navy Federal Credit Union, wrote in a commentary. "The main issue for job seekers is the tariffs. Companies are under pressure to keep profits high, and they are passing along more of the tariff costs to consumers and looking carefully at whether to reduce their workforce size to cut costs."

The unemployment claims are only one of several recent indicators of a hiring slowdown. Hiring had its worst three-month stretch since the pandemic hit in May through July, the Bureau of Labor Statistics said earlier this month. While companies have avoided mass layoffs so far, keeping the overall unemployment rate low, the job market has gotten dismal for anyone looking for a position.

"Taken together at face value, initial and continued claims indicate that firms are not laying off workers, but they aren’t hiring either," Robert Fry, an independent forecaster, wrote in a commentary last week, before the latest unemployment claim figures were released. "If you have a job, you’re OK (so far). If you don’t have a job, you’re out of luck."