HomeBusinessUS business activity increases in June; price pressure decreases

US business activity increases in June; price pressure decreases

WASHINGTON (Reuters) – U.S. business activity rose to a 26-month high in June as employment recovered but price pressures eased significantly, offering hope that a recent slowdown in inflation is likely to continue.

S&P Global said Friday that the flash US Composite PMI Output Index, which tracks manufacturing and services sectors, rose to 54.6 this month.

That was the highest level since April 2022 and followed a final reading of 54.5 in May. A reading above 50 indicates expansion in the private sector. Both the services and manufacturing sectors contributed to the increase in activity.

The elevated composite PMI figures indicate that the economy ended the second quarter on a solid note. So-called hard data, however, paints a different picture. Retail sales barely rose in May, after falling in April. Housing starts continued their decline, reaching their lowest level in almost four years in May.

The economy is slowing after 525 basis points of rate hikes by the Federal Reserve since 2022 to curb inflation. The loss of momentum and declining inflation pressures keep a rate cut on the table this year.

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The US central bank has kept its benchmark interest rate within the current range of 5.25%-5.50% since July last year.

The S&P Global survey’s measure of new orders received by private companies rose to 53.4 this month from 51.7 in May.

The employment measure rose for the first time in three months, amid what S&P Global said “improved business confidence for the year ahead” and “renewed pressure on operating capacity due to rising demand.”

The decline in previous months had raised fears among some economists of an impending sharp slowdown in job growth. So far, the labor market has continued to generate jobs at a robust pace.

The pace of increase in input prices slowed, as did the pace at which firms raise prices for goods and services.

Prices paid for inputs have fallen to 56.6 from 57.2 in May. Output prices fell from 54.3 in May to the lowest level in five months of 53.5. The moderation occurred in both manufacturing and services sectors, where increases were among the slowest in the past four years.

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“Historical comparisons indicate that the latest decline brings the survey’s price gauge in line with the Fed’s inflation target of 2%,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Inflation fell in May, with the consumer price index unchanged for the first time in almost two years.

The flash PMI for the manufacturing sector rose to 51.7 this month from 51.3 in May. Economists polled by Reuters had forecast the index for the sector, which accounts for 10.4% of the economy, would fall to 51.

S&P Global said that “manufacturers’ frequently cited concerns about the demand environment in the coming months, as well as election-related uncertainty, particularly related to policy.”

The PMI for flash services rose to 55.1 from 54.8 in May, the highest level in 26 months. That exceeded economists’ expectations for a reading of 53.7.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

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