US economy near stalling point as consumer demand weakens, survey says

FILE PHOTO: People walk down a street lined with outdoor seating for restaurants in the Little Italy neighborhood of Manhattan, in New York City

By Safiyah Riddle

(Reuters) - U.S. business activity approached the stagnation point in August, with growth at its weakest since February as demand for new business in the vast service sector contracted.

S&P Global said its flash U.S. Composite PMI index, which tracks manufacturing and service sectors, fell to a reading of 50.4 in August from 52 in July, the biggest drop since November 2022. While August's reading was the seventh straight month of growth, it was only fractionally above the 50 level separating expansion and contraction as demand weakened for both manufactured goods and services.

For months, a strong labor market and resilient consumer spending has increasingly assuaged fears of recession, and led to upward revisions of GDP growth forecasts. But Wednesday's data painted a more tepid picture about the economy.

Service sector business activity growth was the slowest since February at 51.0 in August, and the Manufacturing PMI fell deeper into contraction territory at 47.0 down from 49.0 in July, the fourth straight month of contraction.

Wednesday's data was worse than expected, with economists polled by Reuters predicting that the services index would be 52.2 and the manufacturing index would be 49.3.

"A near-stalling of business activity in August raises doubts over the strength of U.S. economic growth in the third quarter. The survey shows that the service sector-led acceleration of growth in the second quarter has faded, accompanied by a further fall in factory output," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Consumer demand posed a substantial drag on revenue for firms, as new business and orders contracted for firms across all sectors. New business in the service sector declined for the first time in six months, falling to 49.2 from 51.0 the month prior.

Both manufacturing and service sector businesses tamed price hikes in order to attract more customers and slowed headcount growth to compensate for resurgent input costs.

Wednesday's cool reading may be viewed positively by the Fed, which is keen to see activity cool to lower inflation.

(Reporting by Safiyah Riddle; Editing by Chizu Nomiyama)