The flash S&P Global manufacturing and services PMI data for December reveal signs of economic weakness, with both sectors expanding less than expected.
Manufacturing PMI eased to 51.8 from 52.2 in the prior month, slightly below the 52.0 estimate. This marks the fifth consecutive month of expansion, but at the weakest pace seen during this period. Production growth slowed to a three-month low, with new orders falling for the first time since December 2024. However, employment growth improved modestly—the strongest increase in four months—and supplier delivery times lengthened, which helped offset softer demand and slower inventory accumulation.
The services PMI also disappointed, registering 52.9 versus the 54.0 forecast and down from 54.1 previously. The composite PMI dropped to 53.0 from 54.2 last month. Despite remaining above the 50.0 expansion threshold, all these figures are below expectations.
Key components detailed by S&P Global provide further insight:
Employment growth softened to its weakest since September, as service-sector hiring nearly stalled while manufacturing employment posted modest gains. Firms cited cost pressures, weak demand, and economic uncertainty as constraints on hiring, despite ongoing labour shortages in some areas.
Business confidence for the year ahead declined slightly and remains below its long-run average. Price rises, uncertainty, and softer customer spending—often linked to tariffs and government policies—weighed on sentiment. Companies hope these challenges will be eased by lower interest rates, fiscal support, and investments in new products, marketing, and capacity.
Input cost inflation accelerated sharply, reaching its fastest pace since November 2022. While manufacturing cost growth slowed a little, input prices for services surged to their steepest increase in over three years, driven mainly by tariffs and rising labour costs. These higher costs passed through to selling prices, with overall price inflation hitting its highest level since July and ranking among the strongest since the 2022 inflation surge. Manufacturers struggled to fully pass on costs due to competitive pressures, whereas service sector price increases topped levels last seen in August 2022.
Inventory dynamics showed growing unsold stock, though at a slower rate than the record build-up in October and November. Backlogs fell as new orders declined, prompting factories to reduce input purchases for the first time since April. Meanwhile, supplier delivery times lengthened significantly, marking some of the worst delays in three years—a situation partly explained by weaker import supply conditions.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented that the data indicate the recent economic growth spurt is losing momentum. Although fourth-quarter GDP is estimated to have expanded at an annualised rate of around 2.5%, growth has slowed for two consecutive months. The sharp decline in new sales ahead of the holiday season suggests activity may weaken further in early 2026.
Weakness appears broad-based, with services work inflows near-stalling and factory orders falling for the first time in a year. Manufacturers continue to report higher output, but lower sales point to unsustainable production levels that may require adjustment unless demand recovers. Services sales growth was one of the slowest observed since 2023.
Firms have reduced hiring in response to a tougher business environment, reflecting declining confidence in the outlook. Rising costs continue to be a major concern, with inflation jumping to its highest level since November 2022. This has led to one of the steepest increases in selling prices seen over the past three years. Tariffs are widely blamed for these inflationary pressures, initially impacting manufacturing but now spreading to the services sector and adding to affordability challenges.
In currency markets, the EURUSD lifted to new intraday highs, breaking above a swing area at 1.1788, currently trading near 1.1793. The USDCAD is falling towards a key target zone between 1.3720 and 1.3726, with a low recently recorded at 1.3731.
For forex traders, these PMI releases suggest a slowing but still expanding US economy, with cooling employment momentum and renewed inflation pressures—especially in services. The Federal Reserve is likely to remain data-dependent amid the ongoing tension between growth resilience and price risks.
Original Source: Greg Michalowski of investinglive.com
