Business Activity
U.S. PMI data highlights service sector growth, manufacturing contraction, and growing economic caution, with slower GDP growth and rising inflation, particularly in manufacturing.
The latest U.S. PMI data indicates a mixed economic picture, with robust growth in services and persistent weakness in manufacturing, showing little change from last year. The manufacturing PMI fell to 49.8, down from 52.7, signalling a contraction in the sector, while the services PMI increased to 54.3, up from 51.0, marking a 3-month high. The composite PMI reached 53.5, reflecting an overall uptick in business activity driven by services. Despite a rebound in the services sector, which accounts for a larger portion of the U.S. economy, manufacturing output declined for the first time this year, largely due to a slowdown in new orders and a drop in output attributed to the uncertainty surrounding tariffs. The data also pointed to weakening confidence in future business conditions, with expectations for the year ahead at their second-lowest point since October 2022. Survey results suggest the U.S. economy is growing at an annualized rate of 1.9% in March, which is a deceleration compared to the previous quarter. The services sector's performance was the primary driver of this growth, with a significant recovery in new business inflows, improved customer demand, and more favourable weather conditions. However, exports in services continued to decline, marking the third consecutive month of contraction. Employment growth was minimal, with many companies expressing concerns over the uncertain outlook, rising costs, and sluggish demand. Manufacturing also faced rising input prices, with inflation reaching a near two-year high, largely attributed to tariff policies, though competition limited the ability to pass on these higher costs to selling prices. The overall sentiment remained cautious, reflecting concerns over federal spending cuts, tariffs, and the broader impact of new policies from the administration, which dampened business confidence, particularly in the service sector.
We expect continued growth in services, with a slow manufacturing recovery, while inflationary pressures due to tariffs and cautious business sentiment persist.