How business responded in May to tariff pause

The May US manufacturing and services composite PMI rose to 52.1 from 50.6 with both components higher m/o/m with the former rising to 52.3 from 50.2 and the latter at 52.3 from 50.8.

The manufacturing improvement seemed all about front running tariffs. S&P Global said “the biggest positive contribution came from inventories, which rose to the greatest extent recorded since the survey began in 2009. Longer delivery times – which are typically associated with busier manufacturing supply chains – also helped push the PMI higher, with delays the most pronounced in 31 months.” With jobs, “employment fell for a 2^nd successive month.” On pricing, “input costs rose at the sharpest rate since August 2022…The latest rise in output prices was overwhelmingly linked to tariffs, having directly driven up the cost of imported inputs or caused suppliers to pass through tariff related cost increases.”

Likely reflecting the reduction in foreign travel to the US, “export orders continued to fall, dropping especially sharply for services…excluding the pandemic, the fall in exports of services was the largest recorded since comparable data were available in late 2014.” On jobs, “service sector payrolls were trimmed for the second time in four months.” On inflation, “Charges levied for services rose to the greatest extent since April 2023.”