Date: Wednesday, May 24, 2023
Source: Wall Street Journal
U.S. economic activity rose in May to the highest pace in 13 months, showing persistent resilience to rising interest rates and high inflation ahead of a debt-ceiling deadline that threatens to bring the expansion to a halt.
Economic output in the U.S. posted the sharpest rise this month since April 2022, according to data firm S&P Global’s surveys of purchasing managers released Tuesday. The gain was led by service-providing businesses, which reported stronger demand for travel, dining out, and other leisure activities. The improvement was offset by cooling activity among U.S. manufacturers.
“While service sector companies are enjoying a surge in postpandemic demand, especially for travel and leisure, manufacturers are struggling with overfilled warehouses and a dearth of new orders as spending is diverted from goods to services,” said S&P Global economist Chris Williamson.
Other S&P Global surveys released Tuesday showed European business activity slowed in May while it picked up in Japan.
Tuesday’s reports come just over a week before the June 1 date after which Treasury Secretary Janet Yellen has said that the U.S. government could become unable to pay bills on time. Prolonged debt-ceiling arguments could push the U.S. into recession, while a default on federal debt could spark a financial crisis.
S&P Global’s composite purchasing-managers index for the U.S., a measure of manufacturing and services activity, rose to 54.5 in May from 53.4 in April. Readings above 50 indicate an expansion. The reading is a “flash” estimate; final data for May will be published in June.
Service activity, the bulk of the U.S. economy, was also at a 13-month high.
The strong services-sector data complicates the picture for the Federal Reserve in the run-up to its June 13-14 policy meeting. Officials are looking for signs of weakening demand as they work to bring inflation back to their 2% annual target. Inflation was 4.6% in March, as measured by the Commerce Department’s personal-consumption-expenditures price index excluding food and energy.
Elsewhere in the world, Japanese surveys also pointed to an acceleration, with activity increasing at the fastest pace since October 2013, driven by postpandemic pent-up demand. The world’s third-largest economy has lifted the last of its Covid-19 restrictions and that move is spurring visits from Chinese tourists.
In the eurozone and the U.K., services output increased at a slower pace in May, while manufacturing output fell more sharply, a sign that rising borrowing costs are taking a toll on economic growth as central banks scramble to tame stubbornly high inflation.
Policy makers at both the European Central Bank and the Bank of England have said they are keeping a particularly close eye on services prices as an indicator of the strength of underlying inflation.
“The European Central Bank will have a headache,” said Cyrus de la Rubia, an economist at Hamburg Commercial Bank, which sponsors the surveys.
The International Monetary Fund on Tuesday said it no longer expects the U.K. economy to contract this year, revising a forecast it made as recently as April.
But growth is expected to remain modest in Europe, with high energy prices and rising food prices eating into household budgets and hurting demand, along with the rising costs of mortgage payments, auto loans and other borrowings. The eurozone’s annual rate of inflation rose slightly in April after five straight months of decline. In the U.S., the inflation rate has trended lower steadily since the middle of last year.
Surveys of Australian businesses recorded a slowdown in activity as the country’s central bank continued to raise its key interest rate.