US Two Speed Economy, Services Activity Rapid Expansion While Manufacturing Contracts – S&P

The S&P Global Flash PMI report PMI report for May 2023 underscored the strength in the US services sector versus a struggling manufacturing sector. Business activity for the services sector comprises the largest component of U.S. economic activity. The report shows the overall strength of the US economy despite the headwinds. The composite PMI index rose to 54.5 versus 53.5 last month, Services PMI rose 55.1 versus the 52.6 estimate and Manufacturing PMI flash floundered at 48.5 versus 50 expected.

The Services index showed strong expansion in service sector output at 55.1, the fastest growth in over a year. S&P attributed this growth to increased demand from new and existing customers.

US May 2023 S&P Global Flash PMI

The dividing line between expansion and contraction is 50.0%.

  • Flash US PMI Composite Output Index at 54.5 (April: 53.4). 13-month high.
  • Flash US Services Business Activity Index at 55.1 (April: 53.6). 13-month high.
  • Flash US Manufacturing Output Index at 51.0 (April: 52.4). 2-month low.
  • Flash US Manufacturing PMI at 48.5 (April: 50.2) 3-month low.
  • Data collected 12-22 May 2023

Overall growth in output was the fastest since April 2022, but led by service providers, who reported stronger demand conditions. Although manufacturers registered growth in production, it was only marginal and slowed from the previous survey period S&P reported.

Total new orders rose for the third month running in May, with the rate of increase quickening to the steepest for a year. Mirroring the trend for output, service providers drove the latest upturn in new business as manufacturers saw a renewed contraction in sales. The fall in manufacturing new orders was the fastest since February as firms noted challenges securing new business as customers continued to work through their existing stocks.

New export orders decreased further, thereby extending the current sequence of decline to 12 months. Moreover, the rate of contraction was the quickest in 2023 to date despite a renewed expansion in service sector new business from abroad. Issues relating to competitiveness and weak demand from key export manufacturers signaled the steepest drop in unfinished work in three years following subdued demand conditions in the sector.

Business expectations for the coming year improved in May. Goods producers were more upbeat than
their service sector counterparts. Optimism stemmed from broad-based hopes of a pick-up in demand conditions and plans to invest in new products and marketing.

Manufacturers signaled stronger optimism regarding the outlook for output over the coming 12 months in May. The degree of confidence was the highest for a year as firms sought to invest in new product development and hoped for an uptick in client demand.

Comments in the Report

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market
Intelligence said:

“The US economic expansion gathered further momentum in May, but an increasing dichotomy is
evident. While service sector companies are enjoying a surge in post-pandemic demand, especially for travel and leisure, manufacturers are struggling with over-filled warehouses and a dearth of new orders as spending is diverted from goods to services.

“The inflation picture is also changing. Whereas manufacturing prices spiked higher during the pandemic
due to strong demand and deteriorating supply, it is now the service sector’s turn to be hiking prices amid resurgent demand and an inability to cope with order inflows due to a lack of capacity.

“Jobs growth has accelerated as service providers companies seek to meet demand, but this tightening labor market amid strong demand will be a concern as a fuel of further inflationary pressures.

From The TradersCommunity News Desk

Source: SPGlobal