U.S. business activity slows considerably in June, survey shows
U.S. business activity slowed considerably in June as high inflation and declining consumer confidence dampened demand across the board, resulting in a gauge of new orders contracting for the first time in nearly two years.
S&P Global said on Thursday its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, dropped to 51.2 this month from a final reading of 53.6 in May.That was the slowest growth pace in five months.
A reading above 50 indicates expansion in the private sector. Though the economy appears to have rebounded from the first-quarter slump, which was largely driven by a record trade deficit, the index suggested that momentum was slowing. It aligned with recent weakness in retail sales, housing starts, building permits, home sales and regional manufacturing.
The economy is battling high inflation, with annual consumer prices increasing at the fastest pace in more than 40 years, forcing the Federal Reserve to aggressively tighten monetary.
The U.S. central bank last week raised its policy rate by three-quarters of a percentage point, its biggest hike since 1994. The Fed has increased its benchmark overnight interest rate by 150 basis points since March. That is stoking fears that the economy could stall or tip into recession next year.
The flash composite orders index tumbled to 47.4, the first contraction since July 2020, from 54.9 in May. Order backlogs also declined for the first time in two years.
With orders slumping, business confidence dived to the lowest level since September 2020.
“Business confidence is now at a level which would typically herald an economic downturn, adding to the risk of recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Weakening demand, however, led to some moderation in prices for both inputs and finished products. Still, inflation at factories and services industries remained high.
The survey’s flash manufacturing PMI decreased to 52.4 from 57.0 in May. Economists polled by Reuters had forecast the index would slip to 56.0.
But a gauge of output at factories plunged to a 24-month low, which was blamed on “weak client demand, as inflation, material shortages and delivery delays led some customers to pause or lower their purchases of goods.” Despite declining production, manufacturers largely held on to their workers.
The survey’s flash services sector PMI dropped to a reading of 51.6 from 53.4 in May.
Source: Reuters (Reporting by Lucia Mutikani Editing by Paul Simao)