S&P: US Business Activity Rebounds.. Iran Conflict Drive Prices Higher

U.S. business activity returned to growth in April following a near-stagnation in March, according to a closely watched survey by S&P Global. However, the recovery is unfolding under mounting inflationary pressure, as supply chain disruptions linked to the escalating conflict with Iran push costs sharply higher.

The firm’s flash Composite Purchasing Managers’ Index (PMI), which tracks both manufacturing and services, rose to 52.0 in April from 50.3 in March, its weakest reading since September 2023. The figure exceeded economists’ expectations of 50.6 and signaled a modest expansion in private-sector activity, as readings above 50 indicate growth.

The rebound was largely driven by manufacturing, where firms accelerated inventory building amid fears of supply shortages and rising input costs. The manufacturing PMI jumped to 54.0, its highest level in 47 months, up from 52.3 in March and above forecasts of 52.5. New orders also strengthened significantly, climbing to 54.8 from 52.3.

In contrast, the services sector posted a more subdued recovery, returning to expansion territory with a reading of 51.3 after contracting at 49.8 in March, the first decline since January 2023. Despite the improvement, services continue to weigh on broader economic momentum.

Chris Williamson, Chief Economist at S&P Global Market Intelligence, noted that April’s data suggests the U.S. economy may struggle to achieve annual growth above 1%, with services acting as a persistent drag.

A key driver of rising costs is the intensifying conflict involving Iran, which has disrupted shipping through the strategically vital Strait of Hormuz. The waterway, a critical corridor for global energy trade, has seen severe interruptions following military escalation and maritime restrictions.

The disruption has fueled sharp increases in oil and commodity prices, spilling over into sectors such as fertilizers, petrochemicals, and aluminum. Supply delays have worsened significantly, with delivery times to U.S. factories reaching their longest levels since August 2022.

S&P Global reported that its output price index surged to 59.9 in April, the highest level since July 2022, up from 58.1 in March, driven largely by supply bottlenecks tied to the conflict. Input costs also climbed, with the input price index rising to 62.6, an 11-month high.

Prices for both goods and services increased at their fastest pace in nearly two years, raising concerns that inflation could reaccelerate after a period of moderation.

The renewed inflationary pressure is likely to complicate the policy outlook for the Federal Reserve. Economists increasingly believe the central bank may delay anticipated interest rate cuts if price pressures persist.

“It will become increasingly difficult to justify rate cuts if inflation continues on this trajectory, especially with economic growth remaining subdued,” Williamson said.

Labor market conditions showed only marginal improvement. The private-sector employment index edged up to 50.2 from 49.7, indicating slight expansion. However, hiring remained uneven: manufacturing employment declined, while services saw only modest gains.

S&P Global attributed weak hiring trends to a combination of worker shortages, resignations, and corporate caution, as businesses navigate uncertain demand and elevated input costs.