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Business activity in the US increases in June; price pressures easing
WASHINGTON (Reuters) – U.S. business activity rose to a 26-month high in June amid a rebound in employment, but price pressures eased sharply, offering hope that the recent slowdown in inflation is likely to be sustained .
S&P Global reported Friday that its U.S. composite PMI production index, which tracks the manufacturing and services sectors, rose to 54.6 this month.
That was the highest level since April 2022 and followed a final reading of 54.5 in May. A reading above 50 indicates expansion in the private sector. Both the services and manufacturing sectors contributed to the increase in activity.
The elevated composite PMI reading suggests that the economy ended the second quarter on a solid note. The so-called hard data, however, paints a different picture. Retail sales barely rose in May after falling in April. The start of housing construction extended its decline, reaching its lowest level in almost four years in May.
The economy is slowing after 525 basis point interest rate hikes by the Federal Reserve since 2022 to control inflation. The loss of dynamism, together with the reduction in inflationary pressures, are keeping a rate cut on the table this year.
The US central bank has maintained its overnight benchmark interest rate in the current range of 5.25%-5.50% since last July.
The S&P Global survey’s measure of new orders received by private companies rose to 53.4 this month from 51.7 in May.
Its employment measure rose for the first time in three months, in a context that S&P Global said was “increased business confidence for the year ahead” as well as “renewed pressure on operational capacity due to increased demand”.
The drop in previous months has raised fears among some economists of a sharp slowdown in job growth. So far, the job market has continued to produce jobs at a solid pace.
The rate of increase in the prices of production factors has slowed down, as has the rate at which companies are increasing the prices of goods and services.
The measure of prices paid for inputs fell to 56.6 from 57.2 in May. The output price indicator fell to a five-month low of 53.5 from 54.3 in May. Moderation was registered in both the manufacturing sector and the services sector, where the increase was one of the slowest in the last four years.
“Historical comparisons indicate that the latest decline aligns the survey’s price indicator with the Fed’s 2% inflation target,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Inflation moderated in May, with the consumer price index unchanged for the first time in almost two years.
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The survey’s flash manufacturing PMI rose to 51.7 this month from 51.3 in May. Economists consulted by Reuters predicted that the sector’s index, which accounts for 10.4% of the economy, would fall to 51.
S&P Global said “concerns commonly cited by manufacturers about the demand environment in the coming months, as well as election-related uncertainty, particularly regarding politics.”
Its flash services PMI rose to 55.1, a 26-month high, from 54.8 in May. That surpassed economists’ expectations of a reading of 53.7.
(Reporting by Lucia Mutikani; editing by Chizu Nomiyama)