U.S. Business Activity Cools in April, Inflation Eases
Demand Weakens Leading to Lowest Activity in Four Months
U.S. business activity in April experienced a decline, reaching a four-month low, due to weaker demand. The slight easing in inflation rates offers a glimmer of hope for the economy. The Federal Reserve is closely monitoring signs of a potential economic downturn to further bring down inflation.
Private Sector Expansion Moderates
The flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, dropped to 50.9 in April from 52.1 in March, indicating a moderation in the private sector’s expansion. Both the manufacturing and services sectors experienced weaker rates of growth, reaching three- and five-month lows, respectively. The reduction in employment, specifically in the services sector, is closely scrutinized by the Federal Reserve.
Momentum Loss in Second Quarter
Comparing the beginning of the second quarter to the January-March period, the survey suggests a loss of momentum in the U.S. economy. According to economists in a Reuters survey, GDP is expected to have increased at a 2.4% annualized rate during the last quarter.
Maintaining Lead over Peers despite Rate Hikes
Despite the Federal Reserve’s 525 basis points worth of interest rate hikes since March 2022, the United States is still outperforming global peers.
Fed Faces Challenges in Taming Inflation
The recent string of stronger-than-expected inflation and employment readings has presented challenges for the Federal Reserve in achieving its target inflation rate. Although the Fed is expected to maintain its policy rate in the current range of 5.25%-5.50% during its upcoming meeting, recent data suggests the need for continued restrictive monetary policy.
Weaker Orders and Easing Input Prices
The survey conducted by S&P Global revealed a decline in new orders received by private businesses for the first time in six months, dropping to 48.4 in April from 51.7 in March. Input prices declined slightly from their March high, but remained elevated. In contrast, selling prices for both goods and services experienced an easing in the rates of increase.
Manufacturing Contraction and Slowed Employment
The flash manufacturing PMI slipped to 49.9 in April from 51.9 in March, pushing manufacturing into contraction territory. The manufacturing sector observed a shrinkage in new orders, a modest slowdown in employment growth, and signals of spare capacity in supply chains. The flash services sector PMI decreased to 50.9 in April from 51.7 in the previous month.
“The deterioration of demand and cooling of the labor market fed through to lower price pressures, as April saw a welcome easing in rates of increase for selling prices for both goods and services,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “Firms’ future output expectations slipped to a five-month low amid heightened concern about the outlook.”
Conclusion
The U.S. business activity witnessed a cooling trend in April with weaker demand impacting both the manufacturing and services sectors. The decline in employment, especially in services, suggests the start of a potential labor market slowdown. The potential relief in the form of eased inflation rates may signal a step in the right direction for the Federal Reserve. The upcoming Federal Reserve meeting is expected to maintain current policy rates amid the growing concern of reversed inflation control efforts and the outlook for the second quarter remains uncertain.
(Reporting by {Reporter Name}; Editing by {Editor Name})
