U.S. Economy Speeds up in March, S&P Finds, but so Does Inflation

Survey of business leaders signals steady growth

Consumers are spending enough money to keep the economy expanding. Many businesses are also hiring. But the U.S. is facing stiffer headwinds.

The numbers: The U.S. economy accelerated in March, S&P Global surveys showed, but so did inflation as companies raised selling prices.

The S&P Global Flash U.S. services-sector index rose to an 11-month high of 53.8 from 50.5 in the prior month. Most Americans are employed on the service side of the economy.

The S&P Global U.S. manufacturing sector index, meanwhile, increased to 49.3 from 47.3. That’s a five-month high.

Any number above 50 points to expansion. Figures below that signal contraction.

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, rose for the first time since last September at service-oriented companies.

Booking at manufacturers fell again, but at the slowest pace in six months. More positively, production increased for the first time since last September.

Employment rose across the economy as both service companies and manufacturers said they added new workers.

On the downside, the increase in demand allowed companies to raise prices at the fastest pace in five months.

Business leaders said rising costs, especially labor, contributed to their decision to raise prices.

That’s not good news for Federal Reserve officials who worry that rising wages could make it harder to get high inflation under control.

Big picture: The service and industrial sides of the economies are following different trajectories.

Americans are spending relatively more money on services such as travel and eating out and spending less on goods. As a result, service companies are still hiring and growing at a faster clip.

Manufacturers are basically treading water due to the shift in consumer spending patterns as well as the depressive effects of higher inflation and interest rates.

Adding it all up, though, the S&P reports paint the picture of a expanding economy that is not on the doorstep of recession.

What remains to be seen is how much the recent banking turmoil hurts lending and makes it harder for businesses to borrow and invest.

Looking ahead: “March has so far witnessed an encouraging resurgence of economic growth,” said Chris Williamson, chief business economist at S&P Global.

“There is also some concern regarding inflation,” he said. “The inflationary upturn is now being led by stronger service sector price increases, linked largely to faster wage growth.”

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