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US economic output has reached its highest level in nearly three years, marking a significant milestone as the nation closes out 2024. According to the latest data from S&P Global, the flash US composite PMI, which measures activity in both the services and manufacturing sectors, recorded a notable increase in December, reflecting a robust economic environment.
Key Takeaways
- US economic output grew at an annualized rate of just over 3% in December.
- The services sector drove the growth, with the services PMI business activity index reaching 58.5, the highest in 38 months.
- Manufacturing PMI fell to 48.3, indicating a decline in manufacturing activity.
- Confidence in the business outlook has surged, particularly following the recent election.
- The Federal Reserve’s upcoming economic projections will provide insights into future interest rate paths.
Economic Output Reaches New Heights
The S&P Global’s flash US composite PMI rose to 56.6 in December, up from 54.9 in August, surpassing economists’ expectations of 55.1. This increase signals a strong recovery in economic activity, particularly in the services sector, which has been a driving force behind the growth.
Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that the US economy is experiencing its fastest growth in nearly three years, with GDP projected to rise at an annualized rate of just over 3% in December. This growth is largely attributed to the booming services economy, which has seen output increase at the sharpest rate since the economy reopened following COVID-19 lockdowns in 2021.
Services Sector Outperforms Manufacturing
The services sector has been the standout performer, with the services PMI business activity index reaching a remarkable 58.5. This marks the highest level in 38 months, indicating strong demand and activity in this sector. In contrast, the manufacturing sector is facing challenges, with the manufacturing PMI declining to 48.3, reflecting a three-month low and a contraction in manufacturing output.
Williamson highlighted that while the services sector is thriving, the manufacturing sector is struggling due to weak export demand and rising costs. The disparity between these sectors underscores the uneven nature of the economic recovery.
Business Confidence on the Rise
Since the recent election, business sentiment has improved significantly, with confidence in the business outlook for the next 12 months reaching its highest level in two and a half years. However, this optimism is tempered by concerns regarding tariffs and inflation, particularly related to the rising costs of imported materials.
In December, raw material prices surged due to supplier-led price increases and higher shipping costs, reflecting busier supply chains in anticipation of potential protectionist measures in the new year.
Looking Ahead: Federal Reserve’s Projections
As the US economy continues to grow, Wall Street strategists remain optimistic about the stock market’s trajectory into 2025. Investors are eagerly awaiting the Federal Reserve’s latest Summary of Economic Projections (SEP), which will shed light on the central bank’s views regarding the economy and future interest rate adjustments.
The SEP will include the Fed’s “dot plot,” outlining policymakers’ expectations for interest rates, as well as projections for inflation, GDP, and unemployment through the end of 2025. This information will be crucial for investors as they navigate the evolving economic landscape.
In summary, the US economy is closing out 2024 on a high note, with significant growth driven by the services sector, while the manufacturing sector faces challenges. The upcoming insights from the Federal Reserve will be pivotal in shaping expectations for the future.