May Business Activity: US business activity slows in May, survey shows

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U.S. business activity slowed moderately in May as higher prices cooled demand for services while renewed supply constraints because of COVID-19 lockdowns in China and the ongoing conflict in Ukraine hampered production at factories.

S&P Global said on Tuesday its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to a reading of 53.8 this month from 56.0 in April. That growth pace, which was the slowest in four months, was attributed to “elevated inflationary pressures, a further deterioration in supplier delivery times and weaker demand growth.”

A reading above 50 indicates expansion in the private sector. The index remains consistent with strong economic growth halfway through the second quarter. The economy contracted in the first quarter under the weight of a record trade deficit, although domestic demand remained solid as households increased spending and businesses ramped up investment in equipment.

Annual consumer prices have increased at their fastest pace in 40 years, prompting the Federal Reserve to start raising interest rates in March and increasingly adopt an aggressive monetary policy posture. The rate hikes and tightening financial conditions have raised fears of a recession next year.

The flash composite orders index slipped to 54.4 this month from 56.6 in April.

“Companies report that demand is coming under pressure from concerns over the cost of living, higher interest rates and a broader economic slowdown,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

The survey’s flash manufacturing PMI decreased to a reading of 57.5 this month from 59.2 in April. That was in line with economists’ expectations. Manufacturing accounts for 12% of the economy.

A measure of output at factories eased to 55.2 in May from 57.6 in April amid “further reports of raw material shortages and delays in supplier delivery times,” which also boosted unfinished work backlogs. China’s zero COVID-19 policy led to the shutdown of the commercial hub of Shanghai, a major supplier of raw materials to factories in the United States.

Its measure of prices paid for inputs by manufacturers accelerated to 84.9 this month from 81.9 in April. But factories continued to hire more workers this month.

The survey’s flash services sector PMI dropped to a reading of 53.5 this month from 55.6 in April. Economists polled by Reuters had forecast a reading of 55.2 this month for the services sector, which makes up more than two-thirds of U.S. economic activity.

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