US Business Activity Inches up in June; Price Pressures Abating

A worker assembles parts of a Tundra Truck at Toyota's truck plant in San Antonio, Texas, US, April 17, 2023. (Reuters)
A worker assembles parts of a Tundra Truck at Toyota's truck plant in San Antonio, Texas, US, April 17, 2023. (Reuters)
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US Business Activity Inches up in June; Price Pressures Abating

A worker assembles parts of a Tundra Truck at Toyota's truck plant in San Antonio, Texas, US, April 17, 2023. (Reuters)
A worker assembles parts of a Tundra Truck at Toyota's truck plant in San Antonio, Texas, US, April 17, 2023. (Reuters)

US business activity crept up to a 26-month high in June amid a rebound in employment, but price pressures subsided considerably, offering hope that a recent slowdown in inflation was likely to be sustained.

S&P Global said on Friday that its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, nudged up to 54.6 this month.

That was the highest level since April 2022 and followed a final reading of 54.5 in May. A reading above 50 indicates expansion in the private sector. Both the services and manufacturing sectors contributed to the gain in activity.

The elevated composite PMI reading suggests that the economy ended the second quarter on a solid note. So-called hard data, however, paint a different picture. Retail sales barely rose in May after falling in April. Housing starts extended their decline, hitting the lowest level in nearly four years in May.

The economy is slowing following 525 basis points worth of interest rate hikes from the Federal Reserve since 2022 to tame inflation. The loss of momentum together with easing inflation pressures are keeping a rate cut this year on the table.

The US central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July.

The S&P Global survey's measure of new orders received by private businesses increased to 53.4 this month from 51.7 in May.

Its measure of employment rose for the first time in three months amid what S&P Global said was "improved business confidence for the year ahead" as well as "renewed pressure on operating capacity from rising demand."

The drop in the prior months had raised fears among some economists of a looming sharp slowdown in job growth. So far the labor market has continued to churn out jobs at a solid clip.

The pace of increase in input prices slowed as did the rate at which businesses are raising prices for goods and services.

The prices paid for inputs measure dropped to 56.6 from 57.2 in May. The output prices gauge fell to a five-month low of 53.5 from 54.3 in May. The moderation was in both manufacturing and the services sector, where the rise was among the slowest over the past four years.

"Historical comparisons indicate that the latest decline brings the survey's price gauge into line with the Fed's 2% inflation target," said Chris Williamson, chief business Economist at S&P Global Market Intelligence.

Inflation moderated in May, with the consumer price index unchanged for the first time in nearly two years.

The survey's flash manufacturing PMI edged up to 51.7 this month from 51.3 in May. Economists polled by Reuters had forecast the index for the sector, which accounts for 10.4% of the economy, dipping to 51.

S&P Global said "manufacturers' commonly cited concerns over the demand environment in the months ahead as well as election-related uncertainty, notably relating to policy."

Its flash services PMI increased to 55.1, a 26-month high, from 54.8 in May. That exceeded economists' expectations for a reading of 53.7.



Economists Warn of Global Trade Risks from Israel-Iran Conflict

Rescue workers at site hit by Israeli airstrikes in Tehran (Reuters)
Rescue workers at site hit by Israeli airstrikes in Tehran (Reuters)
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Economists Warn of Global Trade Risks from Israel-Iran Conflict

Rescue workers at site hit by Israeli airstrikes in Tehran (Reuters)
Rescue workers at site hit by Israeli airstrikes in Tehran (Reuters)

Economic experts have warned that a protracted conflict between Israel and Iran could have far-reaching repercussions on the global economy, driving up energy prices and disrupting key sectors including aviation, insurance, trade, and maritime navigation.

 

Speaking to Asharq Al-Awsat, Saudi Shura Council member Fadl Al-Buainain said the ongoing military confrontation is already impacting global energy markets, with oil prices spiking to multi-month highs in the immediate aftermath of the outbreak.

 

He warned that continued Iranian threats to close the strategic Strait of Hormuz could further fuel the surge in energy prices. “Such an act would be hostile, not only to Gulf nations but also to global consumers, compounding the challenges already facing the world economy”, Al-Buainain said.

 

He stressed that the energy sector is particularly vulnerable to military escalations. “Any disruption to oil production or exports from major producers could send oil and gas prices skyrocketing, with direct consequences for global economic stability”, he said.

 

While current military actions have had limited impact on output and exports, Al-Buainain cautioned that any direct strikes on energy infrastructure could push oil prices above $100 per barrel, depending on how badly global supply chains are hit.

 

The conflict has already disrupted international flight routes and increased operational costs for airlines, he said, while surging risk premiums have driven up insurance costs across the region. Maritime trade and shipping lanes are also at risk of direct disruption.

 

Al-Buainain noted that the fallout will vary across the region. He pointed out that Saudi Arabia, thanks to its strategic location and Red Sea ports, is better positioned to maintain the flow of trade. The kingdom also benefits from pipelines that transport oil from the east to the west, partially shielding its exports from Gulf disruptions.

 

He described energy as the “real engine” of the global economy and said it, along with foreign trade, will bear the brunt of the economic impact. "But the human cost and developmental setbacks caused by war are far worse”, he added.

 

Al-Buainain warned that prospects for a swift diplomatic resolution are diminishing. “Starting wars is easier than ending them,” he said, adding that an Iranian move to shut down Hormuz, while difficult in practice, could spark a direct confrontation with global powers, particularly the United States. “If American interests are attacked, Washington could be drawn into the conflict, which risks expanding beyond control”.

 

Khaled Ramadan, head of the Cairo-based International Center for Strategic Studies, said Israel’s strikes on Iranian energy infrastructure, including the Abadan refinery, which has a capacity of 700,000 barrels per day, could severely reduce oil and gas supplies if the conflict drags on.

 

He told Asharq Al-Awsat that Brent crude had already risen 8–13% following the escalation, crossing $78 per barrel. “Should the Strait of Hormuz be closed, we could see oil prices surge to record levels”, he warned.

 

Ramadan said the conflict could also disrupt global supply chains, especially through Hormuz, affecting non-oil goods such as electronics and food. Shipping and insurance costs would rise, leading to higher consumer prices and a slowdown in global trade.

 

Food staples such as wheat and corn, along with petrochemicals, garments, electronics, auto parts, and pharmaceuticals are all likely to see price increases, he said, citing higher energy and transport costs as well as declining market confidence.

 

Ramadan added that the economic fallout includes rising inflation, weakening currencies, and a drop in investment — particularly in tourism and tech.

 

“The Iranian rial and Israeli shekel have already hit their lowest levels this year,” he noted, adding that the war could reshape global energy alliances, with Europe increasingly seeking alternative suppliers.