Amid trade truce with China, US reports business uptick; price spike likely

Amid a truce in the simmering trade war between Washington and China, US business activity in the month of May has picked up significantly. However, tariffs imposed by US President Donald Trump remained a roadblock, causing a spike in prices for both companies and customers.

The assessment was delivered by S&P Global in a survey released on May 22. The survey hinted at an acceleration in inflation in the coming months, along with a labour market slowdown. The data delivers a stark reminder that stagflation remained a risk for the American economy despite the Trump administration’s recent efforts to de-escalate trade tensions with Beijing .

According to the survey, there were longest manufacturing delivery delays in 31 months while exports of services, including spending by foreign visitors in the US also dropped the sharpest since the COVID19 pandemic. The survey noted that a sharp decline in tourism, which was reflected by lower airline ticket sales and hotel and motel bookings.

The tourism figures were dramatically low since Trump launched an immigration crackdown and often expressed his desires to annex Greenland, Panama and Canada. The S&P Global’s flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, rose to 52.1 in May from 50.6 in April. As per the survey, a reading above 50 in the index reflects the expansion of the private sector.

The timings of it all

It is pertinent to note that the survey was conducted between May 12 and May 21, after the White House announced a deal to slash import duties on China, which had initially been raised by Trump. The tariffs on Chinese goods were eventually lowered to 30 per cent from the initial 145 per cent for 90 days.

“At least some of the upturn in May can be linked to companies and their customers seeking to front-run further possible tariff-related issues, most notably the potential for future tariff hikes after the 90-day pause lapses in July,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Williamson also mentioned that there has been a surge in the input inventories to an 18-year high. Part of the reason for this rise is the looming worries about shortages and price increases caused by the Trump tariffs. Experts noted that the figures indicate that the risks of a recession have diminished. However, they warned that the economy remains in danger of experiencing “tepid growth and high inflation, which could complicate matters for the Federal Reserve.”

US GDP to grow below 1%: Experts

Meanwhile, economists are expecting US GDP growth to slow below 1 per cent this year, with Personal Consumption Expenditures (PCE) inflation is predicted to rise about 3.5 per cent. It is pertinent to note that in 2024, the US economy grew 2.8 per cent while the PCE increased 2.8 per cent.

While the survey indicated that business sentiment improved this month, it remained slightly below the 2024 average due to lingering worries about the negative effects of the Trump tariffs and spending cuts. Apart from this, the survey showed that a measure of prices paid by businesses for inputs vaulted to 63.4, the highest level since November 2022. The figure rose from 58.5 in April.

“The overall rise in prices charged for goods and services … is indicative of consumer price inflation moving sharply higher,” Williamson explained.

With inputs from Reuters.