US business activity slowed marginally in June, though prices increased further amid President Donald Trump’s aggressive tariffs on imported goods, suggesting that an acceleration in inflation was likely in the second half of the year.
The anticipated rise in inflation has resulted in the Federal Reserve pausing its interest rate cutting cycle, putting pressure on the housing market. The existing home sales pace in May was the lowest for the month since 2009 as higher mortgage rates sidelined potential buyers, other data showed yesterday.
The risks of higher inflation and tepid economic growth or stagflation have risen amid the uncertainty caused by the constantly shifting tariffs policy. An escalation in tensions in the Middle East after the United States joined in the conflict between Israel and Iran with air strikes on Tehran’s nuclear facilities has added another layer of uncertainty.
“With tariff-induced price hikes already set to squeeze household spending power, higher petrol prices would intensify the strain on consumer pockets, risking a more pronounced slowdown in the economy,” said James Knightley, chief international economist at ING.
S&P Global said its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, slipped to 52.8 this month from 53.0 in May. A reading above 50 indicates expansion in the private sector.
The survey’s flash manufacturing PMI was unchanged at 52.0. Economists polled by Reuters had forecast the manufacturing PMI easing to 51.0. S&P Global noted a slight rise in optimism among manufacturers “in part reflecting hopes of greater benefits from trade protectionism.”
It, however, added that “companies generally remained less upbeat than prior to the inauguration of President Trump.” Its flash services PMI dipped to 53.1 from 53.7 in May. Economists had forecast the services PMI falling to 53.0.
At face value, the PMIs suggested the economy continued to expand at a moderate pace at the end of the second quarter. But so-called hard data on retail sales, homebuilding and the labour market have painted a picture of an economy that was softening because of tariffs.
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