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US Economy: Growth in May Slowed Further

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US Economy: Growth in May Slowed Further

The US economy has been slowing since its central bank, the Federal Reserve employed a contractionary monetary policy wherein it started to increase interest rates in a sustained and gradual manner. As a result, industries and individuals have preferred to cut their expenses and allocate more into their savings and long-term funds. Furthermore, the monetary policy employed by the US Federal Reserve has also deterred borrowers, both businesses and individuals, from borrowing, further decreasing the overall US economic activity.

The Sluggish Growth Continued in May

Multiple economic indicators have pointed out that the US economy has continued its slow growth in May. The Manufacturing Purchasing Managers’ Index (PMI) in May is at 57.5, down by 1.7 points from its previous seven-month high of 59.2 in the month of April. The PMI determines the dominant direction of economic trends in the manufacturing and service sectors, thus providing data about current and future business conditions to stakeholders, especially its decision-makers and investors.

Meanwhile, the S&P Global Services Purchasing Managers’ Index (PMI) slipped to its weakest reading since January of 53.5 this month of May from 55.6 in April, 2.1 points decrease in a span of a month. The result is worse than the Analysts’ consensus survey estimates of 55.2.

In a note in the data released, Chris Williamson, the Chief Business Economist at S&P Global, said, “Companies report that demand is coming under pressure from concerns over the cost of living, higher interest rates, and a broader economic slowdown.” He added, “Cost pressures have risen to a new survey high which, alongside the encouraging output and employment numbers, will fuel further speculation about the need for further imminent aggressive rate hikes.”

Optimism Grows This Year

Surprisingly, survey respondents in both PMIs registered few signs of current inflation pressure. In sharp contrast with the service sector, where input prices rose at the fastest pace in the sector’s history, while the rate of manufacturing costs increases was among the quickest on record. Manufacturers likewise reported robust order books and some significant reduction in supply and labor shortages compared with the previous months of March and April, mainly due to the ongoing conflict in Ukraine and the fuel crisis in Europe. It provides a great outlook to the service sector as concerns regarding the supply-chain issues are going down.

The Effect on The Dollar and Treasury Yields

Treasury yields plunged following the release of the above-mentioned economic data. This is because the debt markets are sensitive to economic data that might interfere with the Federal Reserve’s tightening policy. The 10-year Treasury return lost 10.5 basis points to close at 2.754%. It was the lowest close for this benchmark since early April. Furthermore, the two-year treasury yield has already lost 14.6 points to 2.479%, and the long-term 30-year bond rate tumbled by 9.9 points to 2.967%. Lastly, following the falling Treasury yields and disappointing PMI results, the US dollar is also slightly down on its major pairs across the Foreign Exchange Market.

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