The manufacturing PMI, falling further into contraction territory by another 0.9 points after a two-point drop previously and at 47.0 coming in well below the consensus calling for a rebound to 48.5, is signaling deterioration in the goods producing sector for the third month in a row.

The services PMI edged down 3 tenths to a still favorable 55.4, extending to 17 months its run of plus-50 scores and three straight months in the mid-50s. The expansion in services remains strong with new orders coming in at a level just shy of August's 27-month high while backlog rose slightly, suggesting lack of spare capacity. Future sentiment nevertheless sharply deteriorated, amid concerns about the outlook for the economy and about demand, which may be linked to the Presidential election.

Details for manufacturing include a 0.7-point rise for output to 48.9 but new orders dropping at the sharpest rate since December 2022 and employment declining at the fastest pace since June 2020. And excluding the pandemic, the decline was the most pronounced since January 2010 as a growing number of firms said they need to reduce capacity due to weak sales. Supplier performance was also a drag, with delivery times shortening to a degree not seen since February.

Price readings for September will not allay inflationary fears, as prices charged in both sectors rose at the fastest pace in six months while input growth accelerated to a one-year high in services even as input prices for manufacturing declined to a six-month low. S&P Global commented that these inflation readings suggest the FOMC may need to move more cautiously in implementing further rate cuts despite the deterioration in manufacturing sector jobs.

The PMI composite, weighted overwhelmingly towards services, fell to 54.4, only a small loss of momentum from August that still signals a sustained economic expansion consistent with annualized GDP growth of 2.2 percent in the third quarter. But strong disparities between the strength of services and the contraction in manufacturing persist, and are worrisome given manufacturing's role as a leading indicator.

September's consensus for manufacturing is up 0.6 points at 48.5 versus August's 47.9 which was down 1.7 points from July and down 3.7 points from June. Services, in contrast, rose 7 tenths in August to a very solid 55.7 with the consensus for September at 55.2.

Composite is seen at 53.0, down from 54.6 in August.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. The flash data are released around 10 days ahead of the final report and are typically based upon around 85 percent of the full survey sample. The report tracks changes in variables such as new orders, stock levels, employment and prices across both manufacturing and services. Production is also tracked, defined as"production" for manufacturing and"output" for services. Results are synthesized into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster output is growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The data are produced by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.