• S&P Global flash composite PMI rises to 52.2 in June, driven by a surge in manufacturing.
  • Manufacturing index jumps to 55.7, well above forecasts, while services edges up to 51.3.
  • The data suggests resilient demand and moderating inflation pressures.

Strong Manufacturing Offsets Service Sector Softness

The U.S. economy picked up speed in June, according to S&P Global's flash purchasing managers indexes released Friday. The composite output index climbed to 52.2 from 51.5 in May, indicating expansion for the sixth consecutive month. The headline figure was fueled by a sharp acceleration in factory activity, with the manufacturing PMI soaring to 55.7, far exceeding the consensus estimate of 54.8. The services PMI ticked up to 51.3, slightly above the 51.0 forecast, signaling modest growth in the dominant services sector.

"Manufacturing is firing on all cylinders," said Chris Williamson, chief business economist at S&P Global Market Intelligence, in a statement. "Producers report the strongest surge in output since early 2022, buoyed by robust demand and improving supply chains." The manufacturing sector's strength was broad-based, with new orders and employment both expanding at faster rates.

Inflation Pressures Ease

Encouragingly, the survey's price gauges showed a cooling of inflationary pressures. Both input costs and output charges rose at slower paces, offering the Federal Reserve some comfort as it debates the timing of rate cuts. "The moderation in selling price inflation is particularly welcome, as it suggests that the recent uptick in inflation may be transitory," Williamson added.

Services activity, while still expanding, lagged behind manufacturing. Respondents cited cautious consumer spending and lingering labor shortages as headwinds. However, the overall picture remains one of moderate growth, with the composite index consistent with annualized GDP expansion of roughly 2%.

Market Reaction and Outlook

U.S. stocks edged higher following the data release, while Treasury yields dipped as traders saw the softer inflation readings as a positive sign. The dollar weakened slightly against major currencies.

Analysts caution that the divergence between manufacturing and services could widen if consumer demand softens further. "The manufacturing recovery seems sustainable, but services are a wildcard," said Sarah House, senior economist at Wells Fargo. "We need to see if the service sector can regain momentum heading into the second half."

The S&P Global flash PMIs are based on roughly 85-90% of final responses and are released mid-month, providing an early read on economic conditions.