Dive Brief:
- U.S. manufacturing expanded this month at the fastest rate since July 2021 as war-related concerns about supplies pushed up new orders to a four-year high, S&P Global said Tuesday.
- At the same time, output and new orders growth in the service sector was sluggish, reflecting resistance to rising prices and low consumer confidence, S&P Global said. Excluding the pandemic period, job cuts at factories hit the highest level since 2009.
- “Most worrying was the further fall in employment” in manufacturing prompted by concerns over the rising prices of raw materials and the staying-power of demand, Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. “We remain concerned as factory growth continues to be temporarily buoyed by inventory building amid supply fears.”
Dive Insight:
Overall U.S. business activity rose in June for the third consecutive month, S&P Global said, noting that its composite index increased to 52.2 — a five-month high — from 51.5 in May.
Still, the rate of growth remained below the level before the start of the war with Iran on Feb. 28, according to S&P Global.
Also, the June survey “pointed to an ongoing bifurcation of the economy, with sluggish service sector growth contrasting with an increasingly solid manufacturing expansion,” S&P Global said.
“Service providers often cited elevated prices, higher interest rates and low confidence among both business and consumer customers,” S&P Global said. The service sector fuels more than 75% of U.S. economic growth.
Amid signs of weakness, several economists have trimmed their estimates for growth this year.
The National Association for Business Economics on Monday said a panel of association economists trimmed its median forecast for gross domestic product growth this year to 2% from 2.4% in March.
The economists echoed findings of the S&P Global survey, noting the harm to the outlook from persistent war, according to NABE.
“Geopolitical conflict remains the top downside concern,” KPMG Senior Economist Yelena Maleyev said in a statement.
Yet “for the first time in over a year, an end to the wars in Ukraine and the Middle East outranked productivity gains as the leading upside risk,” said Maleyev, chair of the NABE survey.
Jagged progress toward resolution of the Iran war has lifted spirits among manufacturers and providers of services, according to Williamson.
“Brighter news out of the Middle East has helped restore some confidence among US businesses in June,” he said.
Still, “the survey signals that current output levels are consistent with the economy struggling to grow much faster than a 1% annualized rate in the second quarter,” he said.
