US Business Activity Growth Cools as Manufacturing Weakens
2023.06.23 11:18
(Bloomberg) — US business activity expanded in early June at the slowest pace in three months, held back by a deeper contraction at factories.
The S&P Global (NYSE:) flash June composite purchasing managers index fell 1.3 points to 53, the group reported Friday. Readings above 50 indicate growth.
The report offered mixed news on inflation. A gauge of factory input prices shrank the most in over three years while a similar measure for service providers climbed to a five-month high. However, the composite measure of prices received dropped to the lowest since 2020.
The group’s overall services gauge remained elevated on robust demand, which helped drive a measure of expectations to a more than one-year high.
Healthy demand for services stood in sharp contrast to a further deterioration at factories. The manufacturing gauge fell to a six-month low, with new orders matching the fastest rate of contraction since May 2020.
“Growth remains dependent on service sector spending,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. “The question remains as to how resilient service sector growth can be in the face of the manufacturing decline and the lagged effect of prior rate hikes.”
In Europe, economic momentum nearly came to a halt in June, according to S&P Global data. A euro area purchasing managers index slid to a five-month low 50.3, led by France and Germany’s struggling factories.
Read More: Euro-Zone Activity Almost Stalls as Recession Rebound Fades
The report showed the composite input-price index picked up from a month earlier, mainly due to wage pressures in the service sector.
At the same time, prices charged by service providers showed the slowest growth in five months and indicated respondents aren’t necessarily passing on all of those costs to consumers. That helped drag the composite measure of selling prices to the lowest level since October 2020.
Weighing firm demand and sticky price pressures in the service sector against cooling factory activity is a challenge facing the Federal Reserve when deciding the trajectory of monetary policy. Central bankers are expected to resume their tightening campaign soon after a brief pause this month.
“It is encouraging to see the overall rate of selling price inflation for goods and services drop to the lowest since late 2020 in a sign that the Fed is winning its fight against inflation,” said Williamson.
Firms ramped up hiring in early June as easing labor shortages allowed employers to fill long-held vacancies, according to the report. Increased hiring in the face of softer demand allowed respondents to clear some of their backlogs.
