WASHINGTON (Reuters) – U.S. business activity crept up to a 26-month high in June amid a rebound in employment, but price pressures subsided considerably, offering hope that a recent slowdown in inflation was likely to be sustained.
S&P Global said on Friday that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, nudged up 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 gain in activity.
The elevated composite PMI reading suggests that the economy ended the second quarter on a solid note. So-called hard data, however, paint a different picture. Retail sales barely rose in May after falling in April. Housing starts extended their decline, hitting the lowest level in nearly four years in May.
The economy is slowing following 525 basis points worth of interest rate hikes from the Federal Reserve since 2022 to tame inflation. The loss of momentum together with easing inflation pressures are keeping a rate cut this year on the table.
The U.S. central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July.
The S&P Global survey’s measure of new orders received by private businesses increased to 53.4 this month from 51.7 in May.
Its measure of employment rose for the first time in three months amid what S&P Global said was “improved business confidence for the year ahead” as well as “renewed pressure on operating capacity from rising demand.”
The drop in the prior months had raised fears among some economists of a looming sharp slowdown in job growth. So far the labor market has continued to churn out jobs at a solid clip.
The pace of increase in input prices slowed as did the rate at which businesses are raising prices for goods and services.
The prices paid for inputs measure dropped to 56.6 from 57.2 in May. The output prices gauge fell to a five-month low of 53.5 from 54.3 in May. The moderation was in both manufacturing and the services sector, where the rise was among the slowest over the past four years.
“Historical comparisons indicate that the latest decline brings the survey’s price gauge into line with the Fed’s 2% inflation target,” said Chris Williamson, chief business Economist at S&P Global Market Intelligence.
Inflation moderated in May, with the consumer price index unchanged for the first time in nearly two years.
The survey’s flash manufacturing PMI edged up 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, dipping to 51.
S&P Global said “manufacturers’ commonly cited concerns over the demand environment in the months ahead as well as election-related uncertainty, notably relating to policy.”
Its flash services PMI increased to 55.1, a 26-month high, from 54.8 in May. That exceeded economists’ expectations for a reading of 53.7.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)