US economic growth hits a snag

The United States again recorded an index below expectations. According to published data, the main S&P Global Flash US PMI Composite Output Index dropped 50.9 points from 52.1 points in April. Although this still signals growth in business activity during the month, the latest data point to only a marginal expansion, the weakest since December. Nonetheless, production has been on the rise for 15 consecutive months.

The PMI for industry was 49.9 points, and for services, it was 50.9 points. Both figures are worse than the previous month and weaker than forecast.

In his data analysis, Chris Williamson, Chief Economist at S&P Global Market Intelligence, emphasized that the economic recovery in the USA at the start of the second quarter lost momentum, and survey respondents reported business activity below the April trend.

He warned that the pace might slow even further in the coming months, as April saw the first decline in new orders in six months, and companies' expectations for future production weakened to the lowest level in five months due to growing concerns about upcoming prospects.

Slower activity growth was observed in both the manufacturing and service sectors, with the pace of growth weakening to three and five months, respectively. Production growth cooled due to weakening demand, as new orders fell for the first time in six months, albeit slightly. According to the S&P report, manufacturers and service providers reported declining new orders.

Williamson observed that a more challenging business environment led companies to reduce employment at a rate not seen since the global financial crisis—excluding the months of lockdowns from the early stages of the pandemic. The decline in employment was particularly significant in the service sector, where employment has decreased the most since mid-2020.

Moreover, excluding the first wave of the COVID-19 pandemic, the decline in employment levels in services in April was the sharpest since the end of 2009. In contrast, employment in the industry saw a slight increase, partially reflecting signs that current production capacities were sufficient to handle the workload, as evidenced by a decline in the backlog of work for the third consecutive month and to a greater extent than in March.

Williamson also noted that the deterioration in demand and cooling of the labour market led to lower price pressure, with April seeing a decrease in the pace of growth in sales prices for goods and services.

This occurred despite the industry's fastest rise in production costs in a year due to rising raw material prices. Service providers often mentioned higher labour and transportation costs, though they recorded the second-lowest overall cost increase in three and a half years.

The April S&P Global Flash US Manufacturing PMI index stood at 49.9 points, signalling unchanged business conditions over the month. The index fell from 51.9 points in March, ending a three-month sequence of improving operating conditions. American manufacturers reduced inventory purchases to a significant degree for the second consecutive month, the most noticeable since August of the previous year.

Companies made some efforts to limit the pace of decline, slightly increasing purchasing activity after a decrease in the previous survey period. Signs of idle capacities in supply chains due to relatively low demand for input remained. Supplier delivery times were shortened for the third month in a row, with the latest improvement in supplier performance being more noticeable than in March.