By Lucia Mutikani
WASHINGTON, April 23 (Reuters) - U.S. business activity picked up in April after nearly stalling in the prior month, but supplier delivery times at factories worsened as the war with Iran disrupted supply chains, pushing a measure of output prices to a near four-year high.
S&P Global said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 52.0 this month. That followed a 50.3 reading in March, which was the lowest level since
September 2023. A reading above 50 indicates expansion in the private sector. Economists polled by Reuters had forecast the PMI little changed at 50.6.
The improvement came mostly from the manufacturing sector, and was driven by what S&P Global said was "stock building in the face of concerns over supply availability and price hikes."
The manufacturing PMI rose to a 47-month high of 54.0 from 52.3 in March, beating economists' expectations for a reading of 52.5. A measure of new orders received by factories jumped to 54.8 from 52.3 in March. The PMI for the vast services sector rebounded to a reading of 51.3 from 49.8 last month, which was the first contraction since January 2023.
"The April PMI is broadly consistent with the economy struggling to manage annualized growth in excess of 1%, with the vast service sector acting as the principal drag," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
The U.S.-Israel war with Iran has disrupted shipping in the Strait of Hormuz, boosting oil prices as well as those of other commodities, including fertilizers, petrochemicals and aluminum.
Tehran effectively closed the strait after U.S.-Israeli strikes on Iran began on February 28. President Donald Trump on Tuesday indefinitely extended the ceasefire with Iran though a U.S. Navy blockade of Iranian ports remained in effect.
INFLATION IS POISED TO ACCELERATE
S&P Global said its measure of output prices jumped to 59.9 this month, the highest reading since July 2022, from 58.1 in March. That mostly reflected delays getting supplies to factories because of the Middle East conflict. Prior to the war, suppliers were being constrained by Trump's sweeping tariffs.
S&P Global said delivery times to factories were the longest since August 2022, noting that "in addition to shipping-related disruptions due to the war, shortages were also linked to the additional purchasing of safety stocks."
The survey's measure of prices paid by businesses for inputs increased to an 11-month high of 62.6 from 60.9 in March. S&P Global said because of shortages and the surge in input prices, average prices charged for goods and services rose in April at the fastest rate since July 2022.
That strengthens economists' expectations that inflation will accelerate in the months ahead and compel the Federal Reserve to delay cutting interest rates for a while.
"It will likely be increasingly hard to make a case for rate cuts if inflation follows the path signaled by the PMI while the economy continues to eke out only modest growth," said Williamson.
The survey's gauge of private-sector employment inched up to 50.2 after dropping to 49.7 in March. There was a reduction in headcount in the manufacturing sector while employment in the services industry barely increased.
S&P Global said though resignations and persistent labor supply shortages accounted for the weakness in overall business employment, "companies also reported concerns over the need to reduce staffing costs in the face of the uncertain demand environment and high input prices."
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama )
