Optimism has vanished! The U.S. S&P Global Composite Purchasing Managers' Index fell to 50.4 in February

According to the latest data released, the U.S. S&P Global Composite Purchasing Managers' Index (PMI) fell to 50.4 in February, down from 52.7 in January, indicating a slowdown in the overall economic activity of the U.S. private sector. Meanwhile, the manufacturing PMI slightly increased from 51.2 to 51.6, still showing expansion in the manufacturing sector. However, the services PMI dropped from 52.9 to 49.7, reflecting weakened momentum in the sector, which has entered a contraction zone.

Chris Williamson, Chief Business Economist at S&P Global Market, stated after the data release that market optimism for the coming year has rapidly declined from near a three-year high at the beginning of the year, turning into one of the most pessimistic expectations since the COVID-19 pandemic. He pointed out that businesses are generally concerned about the impact of federal government policies, including fiscal spending cuts, tariff adjustments, and geopolitical factors.

As a result of this data, the dollar index's intraday gains narrowed, falling back to the 106.4 range, although it still saw a slight increase on that day. The market reacted cautiously to the mixed signals from the U.S. February business activity data.

S&P Global's previous forecast for the February PMI data indicated that changes might be limited compared to the January final value. The market is focused on the Federal Reserve's future monetary policy adjustments, with expectations that it may restart the interest rate cut cycle as early as July. Additionally, influenced by the PMI data expectations, the euro is still facing downward pressure against the dollar in the short term.

The PMI data released monthly by S&P Global is based on surveys of executives in private enterprises, providing a forward-looking perspective on the overall health of the economy, covering key indicators such as GDP, inflation, exports, capacity utilization, employment, and inventory. Among these, the manufacturing PMI, services PMI, and composite PMI are the key focuses for investors, with an index above 50 indicating economic expansion and below 50 indicating contraction. Since the PMI data is released earlier than many official economic statistics, it is often regarded as a leading indicator of economic performance.

The January PMI data showed that the composite PMI fell to 52.7, the lowest level since April 2024, but still indicated robust business activity. S&P Global noted that the rebound in manufacturing production offset the slowdown in services growth, while the growth rate of new orders slowed in January. However, employment growth accelerated, reaching the fastest pace since June 2022, while input costs and product prices both rose at an accelerated rate.

The market had generally expected that the February PMI data would not show significant fluctuations, with the manufacturing PMI expected to rise slightly from 51.2 to 51.5 and the services PMI expected to rise slightly from 52.9 to 53. Although the fluctuations in manufacturing data were relatively mild, as long as the services PMI maintains strong growth, market confidence may remain stable.

Investors will closely monitor the details regarding inflation and the labor market in the PMI report. Federal Reserve Chairman Jerome Powell has taken a cautious stance on interest rate cuts during recent semiannual congressional hearings, with the market currently expecting that the Federal Reserve will cut rates as early as July. He emphasized that, given stable economic growth, a strong labor market, and inflation still above the 2% target, the Federal Reserve is not in a hurry to adjust its policies If the services PMI unexpectedly falls below 50, the market may experience a rapid sell-off of the dollar. However, if the PMI data shows continued expansion in the manufacturing sector and the services sector remains in the growth range, the dollar may strengthen against major currencies. If future PMI data indicates rising input costs in the service industry and a still robust job market, the Federal Reserve may maintain a tighter policy for a longer period. However, if price pressures ease and private sector job growth weakens, market expectations for further interest rate cuts may heat up, putting downward pressure on the dollar