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US economic production reaches 2-year high
The US economy is defying expectations amid concerns of a slowdown.
US Snapshot Composite PMI from S&P Global, which captures activity in the services and manufacturing sectors, stood at 54.4 in May, compared to 51.3 in April. Economists had expected the index to remain largely unchanged in May. Instead, it hit a 25-month high.
Both the services and manufacturing sectors were in expansion mode, with services driving the majority of the composite index’s gains. The services component of the S&P report showed the index registered 54.8 this month, up from 54.2 in April. Manufacturing activity reached a reading of 50.9, up from 50 in April.
Any reading above 50 for these indices represents expansion in the sector; readings below 50 indicate contraction.
“The U.S. economic recovery accelerated again after two months of slower growth, with the first PMI data signaling the fastest expansion in just over two years in May,” wrote S&P Global Market Intelligence chief business economist, Chris Williamson, in the statement. put the U.S. economy back on track for another solid GDP gain in the second quarter.”
Other recent data indicated that the economy is cooling. O April jobs report showed fewer job additions than expected and a recovery in the unemployment rate, while the preliminary GDP reading for the first quarter showed that the US economy grew at a slower rate than initially thought.
For the most part, the market digested this data as a welcome sign for the Fed’s fight against inflation. On Thursday, the hot PMI reading sent stocks to session lows, while the 10-year Treasury yield (^ TNX) quickly added 3 basis points to reach 4.46%. Notably, the interest rate-sensitive Russell 2000 (^RUTA) became negative after the print, falling more than 0.5%.
“[Services] is obviously a very high interest rate [sensitive] part of the economy, and this acceleration in growth is clearly something that will worry the central bank in particular because there are some rising demand pressures here in the economy again,” Williamson told Yahoo Finance.
Williamson noted that input prices continued to rise in May. Manufacturers saw the biggest cost increase in a year and a half.
“This last mile to reach [inflation of 2%] It’s proving really frustrating,” Williamson said.
American flags fly at Dodger Stadium before the game between the Arizona Diamondbacks and the Los Angeles Dodgers. (Kirby Lee-USA TODAY Sports) (USA TODAY Sports/Reuters)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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