“U.S. Business Activity Surges to 13-Month High Amid Optimistic Outlook and Inflation Concerns”

An index of U.S. business activity rose unexpectedly in May to the highest level in nearly a year. Firm demand in the service sector contributed. The outlook for the future of the economy has also become brighter.

S&P Global’s preliminary reading of the Composite Purchasing Managers Index (PMI) for the combined US manufacturing and service sectors in May was 54.5, up 1.1 points from the previous month. This is the highest level since April last year. A reading above 50 indicates an increase in activity.

The service industry PMI also rose to the highest level in a year and a month. On the other hand, the manufacturing PMI fell into a contraction zone. In addition to contracting orders, the growth of production slowed down.

“The inflation landscape is also changing,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “During the pandemic, prices surged on the back of strong demand in the manufacturing sector. Now, price increases have been taken over by the services sector,” he said.

The situation poses a challenge for the Fed as it seeks to keep inflation under control. While goods prices continued to show signs of calming, the latest data showed inflation remained high amid continued strong demand in the services sector.

An index of business prospects climbed to a one-year high. Businesses have become more optimistic about the demand environment, suggesting the economy may avoid a recession.

The composite PMI employment index rose to its highest level since July last year. Job growth in the service sector is accelerating, but “the labor market is tightening amid strong demand, which is feared to add to inflationary pressures,” Williamson said.

Original title:US Business Activity Unexpectedly Quickens to a 13-Month High(excerpt)