U.S. economic activity rose to a 13-month high in May despite a cooldown in the manufacturing sector, according to data firm S&P Global’s Flash U.S. Composite Purchasing Manager’s Index (PMI) report released May 23.

The S&P Global Flash U.S. PMI Composite Output Index registered 54.5% in May, up from 53.4% in April, indicating solid and faster expansion in private sector business activity, according to the report. Readings above 50 indicate an expansion.

The “flash” estimate is based on roughly 85% of total PMI survey responses to provide an advance estimate; final data for May will be published in June.

The rise in output was the sharpest since April 2022 and was led by service providers, according to the report. S&P Global’s service activity index was 55.1% in May, also at a 13-month high. Service providers outpaced manufacturers, as S&P Global’s manufacturing output index was down to 51% in May from 52.4% in April. Meanwhile, the Flash U.S. Manufacturing PMI Index dropped into contraction territory at 48.5% in May, down from 50.2% in April.

“The U.S. economic expansion gathered further momentum in May, but an increasing dichotomy is evident,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said in the report. “While service sector companies are enjoying a surge in post-pandemic demand, especially for travel and leisure, manufacturers are struggling with over-filled warehouses and a dearth of new orders as spending is diverted from goods to services.

“The inflation picture is also changing. (Whereas) manufacturing prices spiked higher during the pandemic due to strong demand and deteriorating supply, it is now the service sector’s turn to be hiking prices amid resurgent demand and an inability to cope with order inflows due to a lack of capacity. Jobs growth has accelerated as service providers companies seek to meet demand, but this tightening labour market amid strong demand will be a concern as a fuel of further inflationary pressures.”