Flash US PMI Data Show Manufacturing Strength Offsetting Slowing Demand and Rising Inflation

US business activity expanded modestly in May as strong manufacturing output continued offsetting softer services demand, though survey data increasingly pointed to a more uncomfortable mix of slowing growth and rising inflation pressures. Flash US Composite PMI Output Index held unchanged at 51.7, while Services PMI Business Activity Index eased slightly from 51.0 to 50.9, a two-month low. In contrast, manufacturing activity strengthened further, with Manufacturing PMI rising from 54.5 to 55.3 and Manufacturing Output Index climbing to 56.2, its highest level in 49 months.

According to S&P Global’s Chris Williamson, the latest data suggest the economic fallout from the Middle East conflict is becoming increasingly visible across US businesses. “Demand was again squeezed by a further spike in prices and jobs were cut as firms worried over rising costs and the economic outlook,” Williamson said. While the economy still appears on track for positive growth in the second quarter, the PMI surveys point to annualized GDP growth struggling to exceed 1%. Williamson also warned that recent manufacturing strength has been partly supported by precautionary stockpiling amid fears of further price increases and supply chain disruptions — support that may fade once inventories are rebuilt.

More concerningly for the Federal Reserve, inflation pressures accelerated further even as demand softened. Williamson noted that firms’ costs are now rising at the fastest pace since the 2022 energy shock and that businesses are increasingly passing those higher costs through to consumers via “sharply higher selling prices.” The combination of slowing order growth, weakening demand, and rising inflation risks reinforces the stagflationary undertone increasingly shaping the US economic outlook as policymakers weigh whether rates may need to stay restrictive for longer.

Full US PMI flash release here.