Business growth slows but stays strong in May

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Business growth slows but stays strong in May

LONDON Reuters - Business growth slowed this month but stayed strong as the cost of living crisis put a dent in consumer spending power while a shortage of raw materials held back expansion in manufacturing, a preliminary survey showed on Tuesday.

S&P Global's flash Composite Purchasing Managers' Index PMI, which was seen as a good guide to overall economic health, fell to 54.9 in May from 55.8 in April, lower than the 55.3 predicted in a Reuters poll.

Any reading above 50 indicates growth.

The euro zone economy retained encouragingly resilient growth in May, as a beleaguered manufacturing sector was offset by a buoyant service sector, said Chris Williamson, chief business economist at S&P Global.

There are still widespread supply constraints and less demand for goods as the economy is boosted by pent-up demand for services as the government tightens its restrictions on the spread of the disease. Demand for services decreased -- the new business sub-index fell to 55.2 from 56.6 - but firms did increase headcount at a faster rate than in April.

A flash PMI covering the manufacturing industry fell to 54.4 this month from 55.5, which is worse than the 54.9 predicted in a Reuters poll and its lowest since November 2020. The output index, which feeds into the composite PMI, rose to 51.2 from 50.7.

Demand chains that were just recovering from the flu have been disrupted by a renewed COVID 19 lock-down in China and Russia's invasion of Ukraine, which has resulted in increased costs and limiting access to raw materials.

The increasing costs of materials to customers were passed on by factory managers as input and output prices remained high. The output prices index fell from April's record high of 77.3 to 76.0.

In April, inflation in the euro zone was a record 7.4%, according to a recent Reuters poll of economists who predicted that the European Central Bank would raise its deposit rate in July. The Future Output Index, which monitors expectations for the year ahead, fell to 59.6 from 60.5, its lowest since July 2020, and fell to 59.6 from 60.5.

It remains to be seen how long this service sector rebound can last, especially given the rising cost of living and the weakness of manufacturing as a concern, as the factory malaise is already showing signs of spilling over to some parts of the services economy, Williamson said.