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U.S. economy grew faster in May, S&P finds, led by strong demand for services

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The numbers: The biggest part of the U.S. economy sped up in May, S&P Global surveys showed, but manufacturers lagged behind.

The S&P Flash U.S. services-sector index rose to a 13-month high of 55.1 in May from 53.6 in the prior month.

Most Americans are employed on the service side of the economy: High-tech, health care, retail, finance, leisure and hospitality and so forth.

The S&P Global U.S. manufacturing sector index, meanwhile, slipped to 51 from 52.4, though it was still higher than Wall Street forecasters predicted.

Any number above 50 points to expansion. Figures below that signal contraction.

The S&P Global surveys are among the first indicators each month to assess the health of the economy.

Key details: New orders, a sign of demand, rose at service companies at the fastest pace since April 2022. Many businesses were also optimistic about the rest of the year and they continued to hire lots of workers.

The downside? High demand has added to inflationary pressures, particularly the cost of labor. Companies are trying to pass rising costs onto customers, S&P said.

Manufacturers, for their part, are growing just enough to hold production steady. Although new orders were weak both home and abroad were weak, companies were more optimistic that demand would improve as the year wore on.

Big picture: The large service side of the economy has continued to grow and keep the U.S. in expansion mode.

The industrial sides of the economy has trailed behind as consumers shift spending away from goods and toward services such as travel and recreation.

Economists question how long the U.S. can stay out of recession given a sharp increase in interest rates as the Federal Reserve battles to slay high inflation. Higher borrowing costs tend to depress the economy .

A majority of business economists believe a recession is likely within 12 months, a new survey shows.

Looking ahead: “The US economic expansion gathered further momentum in May, but an increasing dichotomy is evident,” said Chris Williamson, chief business economist at S&P Global.

Inflation, for its part, was higher in service industries given strong demand and a need for more labor, a problem that could fuel “further inflationary pressures,” he said.

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.01%

and S&P 500
SPX,
-0.20%

fell in Tuesday trades.

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