Economic recovery is overcoming backlogs AND ushering in widespread optimism.

Business activity across the US service sector grew at a sharper pace in May, according to the latest PMI™M data from S&P Global. Output rose at the fastest rate for just over a year, supported by a strong expansion in new business. The upturn in new orders was driven by improved demand conditions in both domestic and export markets. At the same time, firms stepped up their hiring activity again, with employment increasing at a solid pace. Sufficient capacity to process incoming new business allowed companies to reduce backlogs of work for the first time in four months. Meanwhile, business confidence picked up to the highest level in a year, albeit still weaker than the series average.

On the price front, rates of both input price and output charge inflation softened since April though remained elevated.

The seasonally adjusted final S&P Global US Services PMI Business Activity Index registered 54.9 in May, up from 53.6 in April and broadly in line with the earlier released 'flash' estimate of 55.1. The latest upturn in business activity was the fourth successive monthly increase, with the pace of expansion accelerating to the steepest since April 2022. Greater output reportedly stemmed from stronger demand conditions driving a sharper rise in new orders.

Growth in new business quickened again, with the rate of increase the steepest in just over a year. Companies noted that greater client confidence supported the expansion in new orders, as customers - especially in consumer markets- were more inclined to spend. Some also highlighted a broader client base and the acquisition of new customers.

Contributing to the rise in new orders was a renewed upturn in new business from abroad in May. New export orders increased for the first time in a year, and at a solid pace. Demand conditions at new and existing customers reportedly strengthened to support the latest expansion. At the same time, service providers registered another marked increase in input costs. Greater business expenses were partly linked to increased supplier prices, but were largely attributed to higher wage bills and upward pressure on salaries. Although easing from that seen in April to the second-slowest since October 2020, the rate of input cost inflation remained historically elevated.