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Economic Report: High inflation is sapping the U.S. economy, businesses say

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The numbers: Rising inflation is forcing some customers to cut spending and it’s sapped the confidence of business leaders despite still-high demand for goods and services, a pair of business surveys show.

The S&P flash U.S. services index fell to a three-month low of 54.7 in April, erasing a big gain the prior month. The cost of supplies surged to the highest level on record.

The flash U.S. manufacturing index, meanwhile, edged up to a seven-month high of 59.7 from 58.5 in the prior month.

Although demand was strong, manufactures raised the prices they charge customers at the fastest pace on record.

The surveys have been rebranded after S&P acquired IHS Markit. The results are based on polls of senior executives in charge of buying supplies for their companies.

Big picture: On the surface, the so-called flash readings show a steadily growing U.S. economy in which demand is strong across the board. Numbers above 50 signal growth and anything above 55 is seen as exceptional.

Yet the details of the surveys reflect widespread worries over inflation and ongoing shortages of supplies and labor. Some firms said customers reduced spending because of higher prices. Others are more worried about the future, especially with the Federal Reserve moving to raise interest rates.

Looking ahead: “Many businesses continue to report a tailwind of pent up demand from the pandemic, but companies are also facing mounting challenges from rising inflation and the cost of living squeeze as well as persistent supply chain delays and labor constraints,” said Chris Williamson, chief business economist at S&P Global.

“These headwinds, plus increased concerns over the economic outlook and tightening monetary policy, meant business confidence about the outlook slipped sharply lower in April.”

Market reaction: The Dow Jones Industrial Average
DJIA,
-1.03%

and S&P 500
SPX,
-0.72%

fell in Friday trades.

Weekend reads: How to position your investments before the Federal Reserve causes a bear market

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