US business activity accelerates in May; inflationary pressures on the rise

U.S. Business Activity Accelerates to Highest Level in Over Two Years, but Manufacturers Report Surge in Prices

WASHINGTON (Reuters) — U.S. business activity has accelerated to the highest level in just over two years in May, according to S&P Global. The Composite PMI Output Index, which tracks the manufacturing and services sectors, jumped to 54.4 this month, the highest level since April 2022.

While the increase in business activity is a positive sign for economic growth, manufacturers reported a surge in prices for a range of inputs. This suggests that goods inflation could pick up in the months ahead, impacting consumers and businesses alike.

The jump in activity was primarily driven by the services sector, with the services PMI rising to 54.8 from 51.3 in April. The manufacturing PMI also inched up to 50.9 from 50.0, indicating expansion in both sectors.

Despite the positive outlook for economic growth, concerns remain over the future path of inflation and interest rates. Businesses are cautious due to uncertainties surrounding geopolitical instabilities and the upcoming presidential election.

The survey also revealed that new orders received by private businesses increased to 51.7 this month, up from 49.1 in April. However, the measure of employment contracted for a second straight month, though the pace of decline moderated.

Businesses are facing higher prices for inputs, with manufacturing input prices reaching the highest level in one-and-a-half years. This increase in costs is leading companies to raise selling prices in an attempt to pass on the higher costs to customers.

Overall, the report indicates a mixed outlook for the economy, with strong business activity but concerns over rising inflation and uncertainty in the market. The Federal Reserve’s target of 2% inflation may still be out of reach as businesses continue to navigate these challenges.