Economic Buzz: US service sector growth strengthens in May

Concurrent upturns in US service sector activity and new business growth were signaled in May, according to the latest PMI data from S&P Global. Confidence in the outlook also strengthened, whilst firms took on additional staff to a greater degree. However, growth in employment was insufficient to prevent a solid rise in work outstanding.

Rising backlogs in part reflected delays in the delivery of ordered equipment due to tariffs, which also drove up cost inflation to its highest in nearly two years. Increased costs were passed on to clients via the steepest increase in output charges since August 2022.

The S&P Global US Services PMI Business Activity Index recorded 53.7 during May, which was stronger than the earlier 'flash' reading of 52.3.

The index was also up on April's 50.8 and, being comfortably above the critical 50.0 no-change mark, was indicative of a noticeable acceleration of activity growth on April?s 17-month low. Moreover, activity has now risen on a consecutive monthly basis since February 2023.

In May, private sector output growth accelerated sharply on April?s 19-month low. Higher activity was driven by an upturn in the services economy as manufacturing output fell marginally again.

The S&P Global US Composite PMI recorded 53.0 in May, up from 50.6 in the previous month. Both sectors saw increased levels of new business since May, with overall growth improving since April. Employment rose for a third month running.

Confidence in the outlook was the highest since January. Tariffs meanwhile underpinned noticeable accelerations in both input price and output charge inflation.

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