Business activity in the US rose to the highest level in more than two years in May, but the manufacturing sector reported a jump in prices for various inputs, suggesting that goods inflation may pick up in the coming months.
S&P Global reported on Thursday that the U.S. Composite PMI Output Index, which measures the manufacturing and services sectors, rose to 54.4 this month. This is the highest level since April 2022 and follows a final reading of 51.3 in April.
A reading above 50 indicates expansion in the private sector. Economists polled by Reuters had forecast the index unchanged at 51.1. The increase was driven by the services sector, with the flash PMI rising to 54.8 from 51.3 in April. The manufacturing flash PMI rose slightly to 50.9 from 50.0.
Generally, the surge in activity suggests that economic growth picked up in the middle of the second quarter.
GDP rose at an annual rate of 1.6% in the January-March quarter, largely hampered by a surge in imports to meet strong domestic demand.
"Business confidence has edged higher to signal a better outlook for the year ahead," said Chris Williamson, chief business economist at S&P Global Market Intelligence. "However, companies remain cautious on the economic outlook amid uncertainty about inflation and interest rates, and continue to voice concerns about geopolitical instability and the presidential election."
A measure of new orders received by private businesses in the S&P Global survey rose to 51.7 this month from 49.1 in April. The measure of employment fell for the second month in a row, although the rate of decline has moderated.
Businesses face higher input prices. The manufacturing input price index jumped to its highest level in a year and a half amid reports of higher supplier prices for a range of inputs, including metals, chemicals, plastics and wood-based products as well as energy and labor costs. This suggests that goods disinflation is almost at an end.
Higher hiring costs also increase costs for service businesses. Companies try to pass on higher costs to customers by raising sales prices.
