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US business activity accelerates to highest level in 2 years, but price pressures increase
WASHINGTON (Reuters) – U.S. business activity accelerated to the highest level in just over two years in May, but manufacturers reported rising prices for a range of inputs, suggesting goods inflation could rise in the coming months. months.
S&P Global reported Thursday that its U.S. composite PMI production index, which tracks the manufacturing and services sectors, jumped to 54.4 this month. That was the highest level since April 2022 and followed a final reading of 51.3 in April.
A reading above 50 indicates expansion in the private sector. Economists polled by Reuters predicted the index would change little, at 51.1. The increase was driven by the services sector, with the flash PMI rising to 54.8, compared to 51.3 in April. The flash manufacturing PMI rose from 50.0 to 50.9.
At first glance, the jump in activity suggested that economic growth recovered midway through the second quarter.
Gross domestic product increased at an annualized pace of 1.6% in the January-March quarter, largely driven by a surge in imports to satisfy strong domestic demand.
So-called hard data from April, including retail sales, housing construction and permits, as well as industrial production, suggested that the economy lost further momentum at the start of the second quarter. The job market is also slowing down.
“Business confidence rose to signal brighter prospects for the year ahead,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “However, companies remain cautious regarding the economic outlook amid uncertainty about the future path of inflation and interest rates, and continue to cite concerns about geopolitical instability and the presidential election.”
The S&P Global survey’s measure of new orders received by private companies rose to 51.7 this month from 49.1 in April. Its employment measure contracted for the second consecutive month, although the pace of decline moderated.
Companies faced higher prices for inputs. The manufacturing input price index reached its highest level in a year and a half, amid reports of higher prices from suppliers for a wide range of inputs, including metals, chemicals, plastics and metal products. wooden base, as well as energy and labor costs. This would suggest that goods disinflation is close to running its course.
Higher personnel costs have also increased costs for service companies. Companies sought to pass on higher costs to customers by increasing sales prices.
“What is interesting is that the main inflationary impetus now comes from manufacturing rather than services, meaning that cost and sales price inflation rates are now somewhat elevated relative to pre-pandemic patterns in both across sectors, to suggest that the ultimate path to the Federal Reserve’s 2% target still appears elusive,” Williamson said.
(Reporting by Lucia Mutikani; editing by Chizu Nomiyama)