S&P Global Survey Shows May Records 13-Month High for U.S. Business Activity

U.S. business activity rose to a 13-month high in May, driven by strong growth in the services sector. This led to an early second-quarter rise, despite rising recession risks. The latest S&P Global report showed that the U.S. Composite PMI Production Index, tracking both manufacturing and services sectors, rose to 54.5 this month. This was the highest level since April 2022, which indicated growth in the private sector. The PMI has remained above 50 for the past four months. The survey data collected from May 12-22 corroborated labor market resilience this month, with job growth accelerating and the unemployment rate falling to 3.4%.

There was a strong recovery in retail sales, construction activity, and production in factories. The Atlanta Fed raised its second-quarter gross domestic product (GDP) forecast from 2.6% to 2.9% annually. However, most economists foresee a recession in the second half of the year due to the Federal Reserve’s 500-basis point increase since its policy rate in March 2022. The Fed’s monetary tightening policy has been the fastest since the 1980s to curb inflation, which has led to tighter credit conditions and conflicts over a higher federal borrowing limit.

A survey of new orders by private firms showed an index of 54.3 this month, the highest since May last year. The services sector led the increase, with service inflation remaining high, while the price pressures on factories eased. S&P Global Market Intelligence Chief Business Economist Chris Williamson stated that lack of capacity has made it difficult to handle the influx of orders. The PMI for flash services rose to 55.1 this month, the highest in 13 months. The PMI for flash manufacturing fell to 48.5 from 50.2 in April, with new orders declining after expanding in April for the first time in six months. However, manufacturers were optimistic about business conditions next year. The benchmark price paid by factories for raw materials fell below 50 for the first time in three years.

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