In May 2025, U.S. business activity showed improvement, fueled by a temporary easing of trade tensions between the U.S. and China through a White House agreement to reduce tariffs from 145% to 30% for 90 days. S&P Global’s flash U.S. Composite PMI rose to 52.1, indicating expansion in both manufacturing and services sectors. However, inflationary pressures intensified, with the highest increase in input prices since November 2022.
Businesses passed these rising costs to consumers, raising concerns about sharply accelerating consumer price inflation. Manufacturing delivery delays hit a 31-month high, and service exports, including tourism and airline bookings, plummeted—attributed to President Trump’s immigration crackdown and controversial geopolitical statements. Inventory levels surged in anticipation of future supply disruptions. While business sentiment improved, it remained below the 2024 average due to policy uncertainties and spending cuts. Employment indicators declined as firms expressed concerns about future demand and cost pressures.
Overall, the data suggests economic activity is rebounding after a Q1 GDP contraction but raises the risk of stagflation—a period of stagnant growth and high inflation—posing challenges for the Federal Reserve. GDP growth is forecast to slow below 1% in 2025, with core PCE inflation expected to rise to around 3.5%.
