Core Summary

  • S&P Global survey finds U.S. output grew this month after China and the U.S. agreed to a 90-day pause on tariffs exceeding 100%, but the report also noted that remaining import duties triggered a surge in prices.
  • Despite the improvement, business activity and output expectations remain subdued due toconcerns that tariffs will weigh on demand, disrupt supply chains, and further push up pricesS&P Global released survey results from May 12-21 on Thursday, showing the largest increase in goods and services prices since August 2022.
  • "Business confidence improved in May from April's worrying low, with some easing of pessimism about the year-ahead outlook, mainly attributed to the pause on high-rate tariffs," said Chris Williamson, Chief Business Economist at S&P Global, in a statement. However, "part of May's rebound may be related to businesses and clients trying to get ahead of the curve to avoid potential future tariff-related issues."

Deeper Analysis

Economists believe that given the 10% baseline tariff remains in effect and there is no guarantee that the U.S. and China will not escalate the trade war after the high-tariff pause expires on August 12, any recovery in U.S. output this month may be short-lived.

"The near-term outlook is more positive, but risks remain tilted to the downside," Gregory Daco, Chief Economist at EY-Parthenon, said in a client note on Thursday. He added: "Growth will be below trend this year as higher tariffs, waning labor market momentum, and persistent policy uncertainty lead to a wait-and-see stance across the board."

Daco expects the economy could slow to a "stall speed" by the fourth quarter. He forecasts GDP growth of 1.3% in both 2025 and 2026, and lowered the probability of a recession over the next 12 months to 35% from 45% previously.

Daco noted that the labor market could weaken this year, with the unemployment rate rising to 5% from 4.2% in April, and average monthly job gains falling to 70,000 from 160,000 last year. "Three headwinds—rising tariffs and policy uncertainty, federal layoffs, and tighter immigration—pose downside risks to the labor market," he said.

Data released by the U.S. Department of Labor on Thursday showed initial jobless claims for the week ending May 17edged down to 227,000 from 229,000 the prior week, indicating that employers maintained staffing levels after the U.S.-China tariff pause.

S&P Global, when releasing its Flash U.S. PMI Composite Output Index, said employment declined slightly this month after growth in March and April, "mainly reflecting concerns about the future demand outlook, as well as worries over rising costs and labor shortages."