Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
The latest flash PMI (Purchasing Managers' Index) data from S&P Global suggests a partial economic rebound in the United States in May 2025, as businesses respond to easing trade tensions. However, the data also reveals intensifying cost pressures, which may cloud the path to recovery.
The Eurozone, meanwhile, moved in the opposite direction, with activity slipping back into contraction despite positive trade developments.
Flash PMI surveys—early snapshots of economic trends based on responses from a broad sample of businesses—are closely watched for their predictive power on GDP and inflation. For May, the US Flash Composite Output Index rose to 52.1 from 50.6 in April, indicating modest growth.
Both the manufacturing and services sectors improved, with the Manufacturing PMI climbing to 52.3—its highest level since June 2022—while the Services Business Activity Index rose to 52.3.
According to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence: “Business confidence has improved in May from the worrying slump seen in April, thanks largely to the pause on higher rate tariffs.” The US had paused new tariffs in April for 90 days, which appears to have provided businesses temporary relief.
New orders surged, especially in manufacturing, where demand grew at its fastest pace in 15 months. However, export orders for both goods and services continued to decline, with service exports seeing their sharpest drop since the early days of the COVID-19 pandemic. Inventory stockpiling hit record levels, as firms rushed to protect themselves from future tariff-related disruptions.
Price pressures also surged. May recorded the steepest rise in goods and services prices since August 2022, as tariffs drove up input costs. Manufacturing input prices spiked at their fastest rate since August 2022, and service costs rose at their sharpest since June 2023. “Prices charged for both goods and services have spiked higher,” Williamson added, warning that “consumer price inflation [may be] moving sharply higher.”
Employment, by contrast, softened. Both manufacturing and services saw job cuts, reflecting uncertainty about future demand and rising costs. This divergence—stronger activity alongside weaker employment—signals caution among employers.
According to S&P Global’s latest macroeconomic analysis, the flash PMI numbers may slightly overstate optimism. The revised estimate of US GDP for Q1 showed a 0.3% annualised contraction, and although May PMI signals some recovery, overall growth remains subdued. Analysts now estimate second-quarter GDP growth at just 1%—well below trend.
“While there is a rebound from April’s lows, the economy is still operating below capacity,” the S&P Global Intelligence team wrote. Concerns about prolonged inflation may keep the US Federal Reserve from cutting interest rates until December, despite earlier market hopes of a mid-year adjustment.
The picture in the Eurozone was less encouraging. The HCOB Flash Eurozone Composite PMI Output Index fell to 49.5 in May from 50.4 in April—marking a six-month low and the first contraction in output in five months. The services sector drove the decline, with activity dropping at its fastest rate in over a year.
Manufacturing output was stable, but overall demand remained weak.
Commenting on the figures, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: “The eurozone economy just cannot seem to find its footing. Do not blame US tariffs for this one.” He suggested that any benefit from pre-tariff purchasing was limited to manufacturing, while services continued to suffer from sluggish domestic demand.
Confidence among eurozone businesses slipped to a 19-month low, driven by weakening sentiment in the services sector. While manufacturing optimism ticked up, it was not enough to offset broader unease.
The contrast between the US and Eurozone highlights an uneven global recovery. While the US showed signs of a short-term rebound, it came at the cost of higher prices and with little improvement in exports. In Europe, subdued domestic demand and softening confidence suggest that structural issues—not just trade frictions—may be to blame for weak performance.
As the clock ticks toward the July expiry of the US’s tariff pause, businesses globally remain wary. The flash PMI reports offer a mixed message: while there is a glimmer of recovery in the US, it is fragile and inflation-laced. Europe, meanwhile, appears stuck, struggling to convert trade opportunities into broader growth.
With key data releases expected in the coming week—including updated US GDP, core PCE inflation, and the FOMC meeting minutes—markets will be watching closely for signs of how central banks intend to respond to this complex landscape. For now, the PMI signals serve as both a relief and a warning.
S&P Global releases its Flash Purchasing Managers' Index (PMI) data to provide early, timely insights into economic conditions across the manufacturing and service sectors.
These flash estimates are based on approximately 85% of total monthly survey responses and are published ahead of the final PMI data, offering an advance indication of the economic trends. Flash PMI data is published for selected major economies where early, high-quality data collection is feasible and economically significant.
