Dive Brief:

• Services fueled robust economic growth this month even as manufacturing stalled and the coming presidential election undermined business confidence, S&P Global said Monday.
• The S&P Global U.S. PMI Composite Output Index dipped slightly in September compared with August but persisted near the highest level since early 2022, with the service sector growing at the second-highest pace in the past 29 months. At the same time, business expectations for the coming year slumped to a two-year low.
• “Business sentiment, demand, hiring and investment are being subdued by uncertainty surrounding the presidential election, casting a shadow over the outlook for the year ahead at many firms,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.

Dive Insight:

Softening in the labor market and the risk of an economic downturn prompted the Federal Reserve on Wednesday to cut the main interest rate by a half percentage point to a range between 4.75% and 5%. Policymakers cited progress in slowing inflation toward their 2% goal from more than 9% two years ago.

Manufacturing floundered in September for the third straight month, with a slump in new orders driving down the goods-producing sector at the steepest rate since June 2023, S&P Global said, referring to its U.S. Manufacturing PMI released Monday.

“There are some warning lights flashing, notably in terms of the dependence on the service sector for growth, as manufacturing remained in decline and the worrying drop in business confidence,” Williamson said.

Yet some economic data spark optimism, Minneapolis Fed President Neel Kashkari said in an essay published Monday.

“The economy continues to offer mixed signals about its underlying strength,” he said, noting that as the labor market cools “other economic measures suggest ongoing strength.”

For example, gross domestic product growth “and consumer spending continue to show surprising resilience, suggesting still-solid underlying demand,” Kashkari said.

The economy will probably expand at a 2.9% annual rate during the third quarter, the Atlanta Fed said Wednesday. GDP grew at annual rates of 1.4% in the first quarter and 3% in the second quarter, according to the Bureau Economic Analysis.

Conflicting data about the economy warrant caution among central bank officials as they seek to meet their dual mandate to ensure price stability and maximum employment, Atlanta Fed President Raphael Bostic said Monday.

“There remains some uncertainty about whether we can really be fully confident that both our inflation and employment goals are fully within reach,” Bostic said in a speech. “The path of inflation in 2024 has been choppy and the unpredictable nature of rents and housing prices still worries me.”

Fed officials expect to trim the federal funds rate to 4.4% by December and to 3.4% by the end of next year, according to the median of their projections released Wednesday.

The central bank is far from finished easing monetary policy, Chicago Fed President Austan Goolsbee said in talking points for a “keynote conversation” in Chicago Monday.

Referring to the Sept. 18 reduction in borrowing costs, Goolsbee said, the “timing of the initial cut is less important than the longer-arc view that conditions are good on both sides of the [Fed’s] mandate.

“Rates need to come down significantly going forward if we want the conditions to stay that way,” he said.