US business activity slows in May, PMI shows

US business activity slowed moderately in May, as higher prices dampened demand for services, while renewed supply restrictions due to Covid-19 lockdowns in China and the ongoing conflict in Ukraine hampered production at factories.

S&P Global said on Tuesday that its preliminary US composite PMI index, which tracks the manufacturing and services sectors, dropped to a reading of 53.8 this month from 56.0 in April.

This pace of growth, the slowest in four months, was attributed to “elevated inflationary pressures, a further deterioration in supplier delivery times and weaker demand growth”.

A reading above 50 indicates expansion in the private sector. The index remains consistent with strong economic growth through the middle of the second quarter.

The US economy contracted in the first quarter of this year under the weight of a record trade deficit, although domestic demand remained solid as households increased spending and businesses increased investment in equipment.

However, annual US consumer inflation is at its highest levels in 40 years, prompting the Federal Reserve to begin raising rates in March and adopting an increasingly aggressive monetary policy stance.

“Companies report that demand is being pressured by concerns about the cost of living, higher interest rates and a broader economic slowdown,” said Chris Williamson, chief economist for companies at S&P Global Market Intelligence.

The survey’s preliminary manufacturing PMI dropped to a reading of 57.5 this month from 59.2 in April, in line with economists’ expectations. Manufacturing accounts for 12% of the US economy.

The preliminary PMI for the services sector fell to a reading of 53.5 in the period, from 55.6 in April. Economists polled by Reuters had forecast a decline to 55.2 in May in the services sector, which accounts for more than two-thirds of US economic activity.