U.S. business activity experienced a notable improvement in May, coinciding with a temporary easing of trade tensions between Washington and Beijing. According to a report by Lucia Mutikani for Reuters, President Donald Trump’s tariffs on imports have led to increased costs for businesses and consumers, contributing to inflationary pressures.
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Data from S&P Global indicates that the U.S. Composite PMI Output Index, which measures the manufacturing and services sectors, rose to 52.1 in May from 50.6 in April. This growth was mirrored in the manufacturing PMI, which climbed to 52.3, and the services PMI, which also increased to 52.3. The uptick in these indices suggests expansion in the private sector, defying earlier forecasts of a downturn.
Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that part of the growth could be attributed to businesses and consumers attempting to preempt potential future tariff increases following the 90-day reduction in duties on Chinese imports. This sentiment was echoed by a surge in input inventories, reaching an 18-year high, as companies prepared for possible supply shortages and price hikes.
Despite the positive indicators, the U.S. economy remains at risk of stagflation, characterized by slow growth and high inflation, as noted by IndexBox platform data. Economists anticipate GDP growth to decelerate to below 1% for the year, while core Personal Consumption Expenditures (PCE) inflation is projected to rise to approximately 3.5%.
While business sentiment has improved, it still lags behind the 2024 average, partly due to ongoing concerns about the Trump administration’s policies, including spending reductions. The S&P Global survey also revealed an increase in new orders, particularly in manufacturing, and a significant rise in prices paid and charged by businesses, indicating a sharp increase in consumer price inflation.
Employment metrics, however, showed a decline, with a drop to 49.5 from 50.2, reflecting apprehensions about future demand and challenges related to rising costs and labor shortages.
