One notable point from the ISM manufacturing survey was the rise in inventories reported in August, marking the first increase in a year and a half. Meanwhile, the services sector, which accounts for more than three-quarters of U.S. GDP, showed a more positive outlook. The S&P Global U.S. services survey showed the fastest expansion since interest rates began rising in March 2022. That pushed the S&P Global all-sectors reading near its highest levels in more than two years.
The manufacturing segment, which accounts for only about 10% of U.S. national output, has been a factor in stock prices this week because of its influence on the information technology sector, which includes major chipmakers. S&P 500It accounts for nearly a third of the ’s $46 trillion market cap. The US’s push to increase domestic chip production, as seen through the 2022 CHIPS bill, aims to increase the US’s share of the chip market to 14% by 2032, raising optimism in the manufacturing sector.
The cyclical nature of manufacturing makes it a potential early indicator of economic health, with the ISM warning that although its index fell for a fifth consecutive month in August, there is no cause for alarm unless it falls below 42.5, a level not seen since April 2020.
The services sector’s resilience through the summer has made investors cautious but not fully convinced of a broader economic downturn. That caution is evident in expectations for Friday’s employment report, which could provide more insight into the state of the labor market after mixed signals from job openings and layoffs data earlier in the week.
As investors await employment data, the Treasury yield curve between the 2-year and 10-year notes, often seen as a recession indicator, flattened this week, signaling market uncertainty about the economic outlook.
