* S&P's Flash September Flash PMI showed the U.S. grew fractionally during the month.

* Manufacturing activity improved, but it remained in contraction territory during September.

* The Services sector continued to slow, and weak new order growth signals more of the same is ahead.

* Inflation pressures accelerated in September, indicating potential profit pressure as companies are having a harder time passing through costs.

*Job creation rebounded in September to the fastest level since May.

The U.S. Flash Composite PMI for September dipped to 50.1 from 50.2 in August, which suggests the overall economy continued to slow during the month.

As a reminder, a reading above 50 indicates expansion, while one below 50 is indicative of contracting activity. While this is an initial reading by S&P Global (SPGI) and will be revised as we enter October, it suggests the U.S. economy isn't quite as strong as the +4.9% figure put forth by the Atlanta Fed's GDPNow Model for the current quarter. This likely means there will be some shifting in expectations relative to GPD data for the first half of 2022 and the Fed's new 2.1% GDP forecast for 2023.

We have to remember the Atlanta Fed's model is a rolling forecast and gets updated as new data is published. Should the final September PMI data from S&P Global come in largely unchanged and the September PMI data from the Institute for Supply Management show something similar, we should see the Atlanta Fed's model be revised much lower. Despite the slowdown, S&P's findings on both inflation and job creation during September are supportive of the Fed's updated fed funds rate and unemployment forecasts shared earlier this week. Here too, we will look for corroboration in the upcoming September data from ISM.

S&P Global Composite US PMI, January 2023-September 2023Flash

Source: Trading Economics

Digging into the September Flash report and breaking the composite figure down to its Manufacturing and Services components, there is some good news. The initial data finds manufacturing rebounded during the month, improving to 48.9 from 47.9 the prior month and well ahead of the 48.0 consensus. With the flash reading below 50, manufacturing is still slowing but at a softer degree compared to August. Manufacturers also saw a slower drop in new orders but that continued decline likely means we will that activity continue to be a drag on the economy as we start off the final quarter of the year.

Turning to the Services side of the economy, that Flash PMI fell to 50.2 from 50.5 the prior month, missing the 50.6 consensus. Here too, new orders contracted, suggesting further slowing ahead for the part of the economy that has kept composite PMI figures in expansion territory for the last several months.

Looking at S&P Global's findings for inflation during September, it points to little progress on that front during the month.

"Hikes in wage bills, borrowing costs, and material prices, with many panelists mentioning greater fuel expenses, drove up cost inflation in September. The overall rate of input price inflation quickened to the sharpest since June. The faster uptick was led by manufacturing firms where the pace of increase accelerated to the steepest since April as higher oil prices pushed up chemicals, plastics, and transportation costs. Meanwhile, firms found it challenging to pass through the full extent of higher cost burdens to clients amid soft demand conditions and reduced purchasing power among customers."

That speaks to what we recently saw from airline companies that cut bottom-line guidance as they contend with higher jet fuel prices due to the move that has benefited our position in the Energy Select Sector Fund (SPDR) shares. We are likely to see more of that from trucking companies, such as JB Hunt (JBHT) , Ryder Systems (R) , and potentially UPS (UPS) . With companies less able to pass on higher costs, we run the risk of seeing margin pressures, which in turn is a flag on earnings prospects for the second half of 2023.

S&P's data also showed U.S. businesses registered greater hiring activity during September with the pace of job creation the fastest since May. The pace was brisk across manufacturing and services, which suggests employers are having a somewhat easier time finding qualified candidates than in the past.

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