PMI Data Hints at Slowdown for Main Street Smaller Businesses

Business is expanding, but at a torpid pace that signals some pressures for some of Main Street’s smaller firms.

As detailed in the S&P Global Flash US Composite PMI (purchasing managers’ index), which is a preliminary estimate measuring manufacturing and services activities, stagnation, or near-stagnation, is in the cards.

Per the S&P, the readings for August show that “manufacturers dipped back into contraction as production fell again, while service providers saw growth slow to the weakest since February. Subdued client demand drove the slowdown across the economy, as total new orders declined for the first time in six months.”

Drilling down into the tepid expansion, the composite index slipped 1.6 points month over month to 50.4 in August (a reading above 50 represents growth). The Services Business Activity Index was 51, down from 52.3 in July. The U.S. Manufacturing Output Index signaled a contraction, where August’s 47.5 was down from July’s 50.2.

The pace of activity seems to anticipate the risks of gauging end market demand in an uncertain environment. A reduction in output signals that expansion plans on the part of companies themselves are being reined in.

Looking at an Uncertain Environment

For Main Street SMBs, the focus may be on keeping the doors open in an age when consumer demand is shaky and as inflation still remains uncertain. Tapping financing is thus a matter of keeping some financial dry powder in place in the event that top line pressures pinch operating margins. And as noted in the most recent Main Street quarterly report, the majority of companies — 7 in 10 firms — plan to use some form of business financing through the next 12 months.

In tandem with the aforementioned stats that see at least some (slight resilience) in the services sector, separate PYMNTS findings, in collaboration with Enigma, show roughly 60% of Main Street SMBs foresee the economy entering a recession within the next 12 months.

Retailers are among the least sanguine sectors within the segments that have been surveyed. As many of 65% of retailers surveyed anticipate entering a recession within the next year. But as for the services stalwarts: SMBs operating in the food, entertainment and hospitality sectors are among those relatively less concerned — but that still means 54% of these service economy firms expect a recession within the next 12 months.

The shift toward spending on services/experiences has been well documented this past earnings season, and as remarked upon by the likes of Visa, as payment volumes surged and economies remain fully open amid a receding pandemic.

In the meantime, as PYMNTS reported, eating outside of the home saw a 1.4% boost month over month. But spending on hard goods (a hint at manufacturing sector pressures) slipped in categories like electronics and home furnishings.