US economy’s growth slows in May due to inflation and weaker demand, S&P finds

The numbers: US businesses expanded at the slowest pace in several months, a pair of surveys showed, reflecting the effects of high inflation, ongoing supply shortages and some softening in customer demand.

The S&P flash US services index drop to a three-month low of 53.5 in May from 55.6 in the prior month.

The flash US manufacturing index, meanwhile, slid to a three-month low of 57.5 from 59.2.

Any number over 50 signifies expansion, and numbers above 55% are exceptional.

Key details: New orders rose at the slowest pace since August 2020, when the coronavirus was still affecting large swaths of the US economy.

The high cost of materials and supplies has taken a toll on orders, production and customer demand. The so-called input price index rose to a new series high.

Other problems include high gasoline prices, rising US interest rates and more expensive labor, companies said.

big picture: Rampant inflation and the Federal Reserve’s plan to sharply raise interest rates in response are acting as drags on the economy.

The economy is still expanding, but at the slowest pace since the end of broad government restrictions put in place early in the pandemic.

Looking ahead: “The early survey data for May indicate that the recent economic growth spurt has lost further momentum,” said Chris Williamson, chief business economist at S&P Global. The report used to be known as IHS Markit.

“Companies report that demand is coming under pressure from concerns over the cost of living, higher interest rates and a broader economic slowdown,” he added.

Market reaction: The Dow Jones Industrial Average DJIA,
+0.15%
and S&P 500 SPX,
-0.81%
fell in Tuesday trades.

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