Recession fear is no more, claim experts but send chilling warning about US economy

Recession fears likely to have gone down as the US business activity picked up in May. The improvement in the PMI, key indicator to the manufacturing and services sectors, aligns with economists' expectations for a rebound in economic activity this quarter after gross domestic product contracted at a 0.3 per cent annualized rate in the first quarter. Though risks of a recession have diminished, the economy remains in danger of experiencing a period of tepid growth and high inflation, which could complicate matters for the Federal Reserve, as per a report.


Reuters reported that economists expect GDP growth to slow to below 1 per cent this year, with Personal Consumption Expenditures (PCE) inflation, excluding the volatile food and energy components, forecast to rise about 3.5 per cent. The economy grew 2.8 per cent in 2024, while the so-called core PCE inflation increased 2.8 per cent.


U.S. business activity picked up in May amid a truce in the trade war between Washington and China, but President Donald Trump's sweeping tariffs on imported goods raised prices for companies and consumers.


The survey from S&P Global on Thursday hinted at an acceleration in inflation in the coming months and a labor market slowdown, a reminder that stagflation remained a risk for the economy despite steps by the Trump administration to de-escalate trade tensions with Beijing.


S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 52.1 this month from 50.6 in April. A reading above 50 indicates expansion in the private sector.


The survey's flash manufacturing PMI increased to 52.3 from 50.2 in the prior month. Economists polled by Reuters had forecast the manufacturing PMI would dip to 50.1. Its flash services PMI rose to 52.3 from 50.8 in April. Economists had forecast the services PMI would be unchanged.

The survey was conducted in the May 12-21 period, after the White House announced a deal to slash duties on imports from China to 30 per cent from 145 per cent for 90 days.

FAQs

Q1. What have economic experts claimed?
A1. economists expect GDP growth to slow to below 1 per cent this year, with Personal Consumption Expenditures (PCE) inflation, excluding the volatile food and energy components, forecast to rise about 3.5 per cent.

Q2. What is full form of PCE?
A2. The full form of PCE is Personal Consumption Expenditures.