S&P Global- Lower Inflation and Lessening Recession Fears Help the US Economy

S&P Global- Lower Inflation and Lessening Recession Fears Help the US Economy

Business leaders are more optimistic but still worry about a tight labor market and rising labor costs.

The numbers: The U.S. economy showed signs of a rebound in February, S&P Global surveys showed, as worries about inflation and a potential recession eased.

The S&P Global Flash U.S. services-sector index climbed to 50.5 from 46.8 in the prior month, marking the first positive reading since last summer. Most Americans are employed on the service side of the economy.

The S&P Global U.S. manufacturing sector index, meanwhile, edged up to a four-month high of 47.8 from 46.9.

Any number below 50 suggests a contracting economy, however.

The S&P Global surveys are among the first indicators each month to assess the health of the economy.

Key details: New orders, a sign of future sales, improved a bit in February but were still soft.

Yet employment levels “remained buoyant,” S&P Global said, as companies expect greater demand for their goods and services “in the coming months.”

The chief worry among businesses? A tight labor market and rising wages have overtaken fading supply shortages as the chief driver of inflation. That’s raised concerns about a wage-price spiral.

The Federal Reserve is also worried about how fast wages are rising, because that could hinder its effort to tame high inflation. The Fed wants the growth in pay to slow to 3% or less from a recent high of more than 5% a year.

Big picture: High interest rates orchestrated by the Fed to quell inflation have slowed the economy, helping to ease supply shortages that contributed to the runup in prices.

Yet the U.S. economy is still growing and many companies are hiring, a sign that recession is not close at hand.

Looking ahead: “February is seeing a welcome steadying of business activity after seven months of decline,” said Chris Williamson, chief business economist at S&P Global. “The business mood has brightened amid signs that inflation has peaked and recession risks have faded.”

Market reaction: The Dow Jones Industrial Average and S&P 500 both fell in Tuesday trades.

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