ALBAWABA – The United States (US) price index on service sector inputs has declined to a three-year low as the service sector slowed in May on slightly decelerated demand, which Sky News Arabia (SN Arabia) said could help the Federal Reserve (Fed) fight US inflation.
Factory orders rose for the second month in a row in April, whereas May data reports are not out yet.
However, a private survey reportedly showed manufacturing activity was generally weak across the board, except for the defense sector, according to Sky News Arabia. Defensive manufacturing orders jumped in April, the survey showed.
The survey indicated that the sector has entered into an extended state of weakness, as reported by SN Arabia.
Service sector PMI strong tool in Fed fight against US inflation
The Institute for Supply Management said Monday that its non-manufacturing purchasing managers' index fell to 50.3 last month from 51.9 in April. This index factors in purchase orders in the service sector only.
The decline came contrary to a recent Reuters economists poll, which predicted that the non-manufacturing PMI in the US to rise to 52.2.
Notably, any reading above 50 indicates growth in the sector, but a decline in the figure indicates a decelerated pace of growth.
The service sector accounts for more than two-thirds of the US economy.
According to SN Arabia, the services sector benefited from the shift in consumer spending after spending extravagantly on goods during the Corona pandemic.
Much of the public expenditure back then and in the aftermath of the lockdowns poured into the service sector, including food and beverages and travel and tourism. But after the Federal Reserve raised interest rates by 500 basis points since March 2022, consumers are focusing more on basic needs.
The index of prices paid by service companies to purchase inputs fell to 56.2 last month, the lowest level since May 2020, after recording 59.6 in April, Sky News Arabia reported.
Service prices are usually more stable and less susceptible to interest rate hikes, which is why the service sector price index is one indicative gauge of inflation.
Defense manufacturing drives factory PMI
As for the manufacturing sectors, a Commerce Department report on Monday showed that orders for defense capital goods jumped 36 percent, boosting factory orders in April.
Factory orders increased 0.4 percent, after rising 0.6 percent in March, compared to the 0.8 percent predicted by a Reuters economists’ poll.
Year-on-year, orders rose 1.4 percent in April.
Excluding the defense sector, orders fell 0.4 percent. Excluding transportation orders, most of which were military orders, orders fell 0.2 percent, SN Arabia reported.
