US Business Activity at a Two-Year High, According to S&P Global

Unexpected Surge in Preliminary PMI Prints

Despite recent declines in both 'hard' and 'soft' data, S&P Global's preliminary PMI prints for May have shown a surprising surge. Manufacturing has returned to expansion, with the Flash US Services Business Activity Index reaching a 12-month high at 54.8 (up from 51.3 in April), and the Flash US Manufacturing PMI at a 2-month high of 50.9 (up from 50.0 in April). However, the significant drop in hard data in May should not be overlooked.

Fastest Pace in Two Years

S&P Global reports that US business activity accelerated at the fastest pace in two years in early May. This is largely due to stronger growth in service providers, coupled with a rise in inflation. The flash May composite purchasing managers index rose by more than 3 points to 54.4, the highest since April 2022. However, selling price inflation has also increased, indicating slightly above-target inflation.

Inflationary Impetus Now Coming from Manufacturing

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the main inflationary impetus is now coming from manufacturing rather than services. This means that rates of inflation for costs and selling prices are somewhat elevated by pre-pandemic standards in both sectors, making the final mile down to the Fed’s 2% target elusive. The report showed that factory input prices have risen at the fastest rate since November 2022, and prices-paid and received metrics for service providers have also increased.

US Economy Back on Course for Solid GDP Gain

Williamson further commented that the US economic upturn has accelerated again after two months of slower growth, with the early PMI data signaling the fastest expansion for just over two years in May. This puts the US economy back on course for another solid GDP gain in the second quarter. However, he also warned that companies remain cautious due to uncertainty over the future path of inflation and interest rates, as well as concerns over geopolitical instabilities and the presidential election.

Contrasting Views on Growth

Interestingly, while growth macro data is surprising to the downside, this survey suggests that growth is thriving and that the Bidenomics rule is effective.

What's Your Take?

What do you think about this report? Is the US economy truly on an upturn, or are there still significant challenges ahead? Share your thoughts and this article with your friends. Also, don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.