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Private Sector Business Activity at Lowest Level Since COVID Lockdowns

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In yet another sign the economy is tanking, private-sector business activity contracted for the second straight month in August.

The S&P Global flash composite purchasing managers index (PMI) dropped to 45 this month from a reading of 47.3 in July. A print below 50 indicates a contraction in economic activity.

The consensus forecast was for the composite PMI to rise to 49.1.

S&P Global called the reduction in output “broad-based.”

The decrease in output was the fastest seen since May 2020. … The rate of contraction also outpaced anything recorded outside of the initial pandemic outbreak since the series began nearly 13- years ago.”

The American service economy contracted the most, with the US Services Business Activity Index plunging from 47.3 in July to 44.1 in August. According to S&P Global, “Service providers noted that hikes in interest rates and inflation dampened customer spending as disposable incomes were squeezed.”

New orders in the service sector contracted at the steepest pace for over two years, as companies highlighted greater client hesitancy in placing new work.

The last time the services PMI fell this low was May 2020 during the initial COVID lockdown.

US Manufacturing PMI remained above 50, but barely, falling from 52.2 in July to 51.3 in August. That was the lowest level since July 2020. According to S&P Global, the manufacturing PMI “continued to signal subdued operating conditions across the manufacturing sector.”

The US PMI is weaker than any PMI in Europe or Asia.

This throws another bucket of cold water on the mainstream “strong economy” narrative. Peter Schiff asked rhetorically in a tweet, “How weak must the US economy be if the service sector is as weak now as it was when the country was in full COVID lockdown?”

GDP contracted in both the first and second quarter of this year. Two consecutive GDP drops have typically been viewed as a recession, but the Biden administration, the central bankers at the Federal Reserve, and the corporate financial media have insisted that the economy is not in a recession. With this kind of data, it is becoming more and more difficult to maintain this spin.

This puts more pressure on the Federal Reserve as it continues to try to fight inflation.

Powell and Company do not want to have to acknowledge an economic downturn because that will make it more difficult for them to keep raising rates. The central bank has only pushed rates to 2.5% and the economy is already shuddering. If it is really serious about the inflation fight, it has a lot more hiking to do. It seems pretty clear the economy can’t handle it. That’s why Peter Schiff continues to warn we’re about to get the worst of both worlds – a deep recession and high inflation.

I’m not going to give credit to the Federal Reserve for trying to put out a fire that it lit. And by the way, they’re not even putting enough water on it to put it out. The Fed should have raised interest rates a lot more than it already has. And it should be raising them a lot more. It’s gone much too slow. And not because the economy can handle it. It can’t. We’re already in a recession. They just want to ignore that. The recession is going to get worse if the Fed continues to raise interest rates. But it shouldn’t stop just because it’s going to put the economy into a depression or create a financial crisis. It has to do that. The only way to fight inflation is to remove all the inflation from the economy that the Fed put in there. So, they have to shrink their balance sheet. They have to let interest rates go way up. They have to force the government to slash government spending. But unfortunately, none of that is going to happen. This recession is going to get much worse, and Powell is going to pivot in defeat. He’s going to focus his attention on trying to stimulate the economy and let inflation run out of control.”

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About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
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