US business activity fell in April to a four-month low due to weak demand, while inflation eased slightly despite a sharp rise in input prices, suggesting some moderation may be ahead as the US Central Bank looks for signs that the economy is contracting with enough to lower inflation further.
S&P Global announced on Tuesday that the US Composite Output PMI Index, which tracks the manufacturing and services sectors, slipped to 50.9 this month from 52.1 in March. A reading above 50 indicates expansion in the private sector.
The contraction reflected weaker growth rates in both the manufacturing and services sectors, with activity slowing to three- and five-month lows respectively. That meant jobs data, which the Fed is closely watching for signs of a slowdown, declined for the first time since June 2020, with the reduction concentrated in services.
The findings of the survey show that the economy lost momentum at the beginning of the second quarter compared to the January-March quarter. Based on a Reuters survey of economists, GDP likely grew at an annual rate of 2.4% last quarter.
The Fed has recently been rattled by a series of stronger-than-expected inflation and employment readings, suggesting its efforts to lower inflation to the central bank's 2% target rate have stalled.
The Fed will meet next week and is expected to leave policy rates unchanged at the current range of 5.25%-5.50%. Last week, a group of Fed officials pulled back from signaling at least one rate cut this year, instead saying only that the latest data meant monetary policy needed to be more restrictive for a longer period.
The S&P Global survey's measure of new orders received by private businesses slipped to 48.4 from 51.7 in March, the first decline in six months, while a measure of prices paid for inputs fell to 56.5, down from a six-month high of 58.7 reached in March. The output price index fell to 54.1, down from a ten-month high of 56.4 recorded in March, but still high.
The manufacturing sector is in a contractionary phase with the survey's flash manufacturing PMI declining to 49.9 this month from 51.9 in March. New orders shrank slightly with job growth slowing, albeit modestly, and supply chains showing signs of existing capacity. The survey's flash services sector PMI fell to 50.9 in April from 51.7 in the previous month.
