- Manufacturing PMI flash 48.5 versus 50 expected.
- Services PMI 55.1 versus 52.6 estimate
- composite index 54.5 versus 53.5 last month
Summary of the Manufacturing Flash PMI:
The S&P Global Flash US Manufacturing PMI for May 2023 stood at 48.5, indicating a slight deterioration in manufacturing operating conditions from 50.2 in April. This decline is attributed to weak demand conditions and a decreased necessity to hold inputs, due to improved delivery times and lower new order inflows.
Output continued to grow, albeit at a slower rate, due to factors like increased workforce numbers and timely delivery of inputs. However, demand conditions showed a notable weakness, leading to a significant fall in new orders. The decline in new orders was driven by previous increases in selling prices and sufficient stock levels at clients. There was a particularly sharp decrease in new export orders.
Despite these conditions, manufacturers continued to hire new employees as the availability of job candidates improved. Employment growth was robust, helping to increase capacity and process incomplete work, resulting in a sharp decline in backlogs.
There was a significant decrease in inflationary pressures, as input prices fell for the first time since May 2020 due to dwindling demand for inputs. Lower cost burdens were reflected in output charges, which increased at the slowest rate since July 2020.
Manufacturers showed a higher degree of optimism for the future, with the highest level of confidence in a year, due to investment in new product development and the expectation of increased client demand.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, pointed out the increasing divide between the service and manufacturing sectors, with the former experiencing a surge in demand, while the latter struggles with overstock and a lack of new orders. He also noted the changing inflation landscape, with the service sector now facing increasing prices due to resurgent demand and a lack of capacity. He cautioned about potential further inflationary pressures from a tightening labor market amid strong demand.
Summary of the services Flash PMI:
The S&P Global Flash US Services Business Activity Index in May reported a strong expansion in service sector output, standing at 55.1, the fastest growth in over a year. This growth was attributed to increased demand from new and existing customers.
There was also a significant rise in new business for service providers, the quickest since April 2022, surpassing the series average. A notable contribution to this increase was the growth in new export orders, which saw a positive trend for the first time in a year.
Despite the fact that inflation pressures remained high, the rates of input prices and output charges growth were faster than their respective series averages. Companies often pointed to higher wage bills as a primary driver of inflation.
Job creation also saw an uptick in May, with employment growth being the fastest in ten months, and levels of unfinished business remained stable due to improvements in capacity. Service providers reported confidence in continued growth of business activity over the next year, with the level of optimism reaching a one-year high, driven by expectations of sustained increases in client demand.