On November 22, 2024, a measure of U.S. business activity surged to a 31-month high, driven by expectations for lower interest rates and favorable policies from President-elect Donald Trump's forthcoming administration. According to S&P Global, the flash U.S. Composite PMI Output Index rose to 55.3 in November, marking the highest level since April 2022, compared to 54.1 in October.
A PMI reading above 50 indicates expansion in the private sector, suggesting that economic growth likely accelerated in the fourth quarter. While hard economic data, such as retail sales, indicates solid growth, challenges remain in housing and manufacturing sectors. The economy recorded a 2.8% annualized growth rate in the July-September quarter, with the Atlanta Federal Reserve estimating a 2.6% growth pace for the fourth quarter.
Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that the increase in the PMI reflects accelerating growth, fueled by optimism regarding lower interest rates and a business-friendly approach from the incoming administration. The services sector largely contributed to the PMI increase, while the decline in manufacturing appeared to stabilize.
The index measuring new orders received by private businesses rose to 54.9 from 52.8 in October. Additionally, price increases slowed, with the average prices paid by businesses for inputs decreasing to 56.7 from 58.2 last month. Businesses exhibited caution in raising prices amid consumer resistance, as the measure of prices charged for goods and services fell to 50.8, the lowest since May 2020.
This decline in prices offers potential for a renewed downward trend in inflation, which could enable the Federal Reserve to continue reducing interest rates. The central bank began its easing cycle with a 50 basis point cut in September, followed by another 25 basis point reduction this month, bringing the benchmark overnight interest rate to the 4.50%-4.75% range.
Despite heightened confidence among businesses, employment levels remained relatively unchanged at 49.0, with continued declines in services sector employment, although manufacturing showed signs of recovery. The flash manufacturing PMI increased slightly to 48.8 from 48.5, while the flash services PMI rose to 57.0, the highest since March 2022, from 55.0 in October, surpassing economists' expectations.