WASHINGTON, July 24 (Reuters) - U.S. business activity climbed to a 27-month high in July, but firms appeared to have some difficulty sustaining higher prices for their goods and services amid resistance from consumers, offering a further boost to the inflation outlook.
S&P Global said on Wednesday that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, edged up to 55.0 this month. That was the highest level since April 2022 and followed a final reading of 54.8 in June.
A reading above 50 indicates expansion in the private sector. A pick-up in the services sector offset an easing in the manufacturing industry.
Average prices charged for goods and services rose at the slowest rate since January and are now at levels that S&P Global viewed as consistent with the Federal Reserve's 2% inflation target. The moderation corroborates reports from major retailers about consumers pushing back against higher prices and suggests that inflation was on a downward trend after consumer prices fell for the first time in four years in June.
The steady rise in the composite PMI implied that economic activity remained on solid footing at the start of the third quarter. The government is expected to report on Thursday that gross domestic product increased at a 2.0% annualized rate in the second quarter, picking up from the January-March quarter's 1.4% pace, a Reuters survey of economists showed.
"The flash PMI data signal a 'Goldilocks' scenario at the start of the third quarter, with the economy growing at a robust pace while inflation moderates," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
The S&P Global survey's measure of new orders received by private businesses slipped to 52.9 from 53.1 in June. Its measure of prices paid by businesses for inputs increased to 57.8 from 56.5 in June. That reflected rising raw material, shipping and labor costs. Higher wages in the services sector remained a factor.
But the survey's gauge of prices charged slipped to 53.1 from 53.8 in June, the slowest rate since January and the second slowest since October 2020.
Private sector employment continued to increase, though momentum slowed in both the manufacturing and services sectors.
The survey's flash manufacturing PMI dropped to a seven-month low of 49.5 this month from 51.6 in June. Economists polled by Reuters had forecast the index for the sector, which accounts for 10.3% of the economy, little changed at 51.7.
Its flash services PMI rose to 56.0, a 28-month high from 55.3 in June, confounding economists' expectations for a drop to a reading of 55.0. S&P Global said sentiment about the future continued to be adversely impacted by uncertainty regarding the November presidential election and resulting policies.
Reporting by Lucia Mutikani; Editing by Andrea Ricci
