By Xavier Fontdegloria

Business activity in the U.S. gained pace in March driven by the services sector, signaling that the economy remained resilient at the end of the first quarter despite higher interest rates and the banking turmoil, data from a purchasing managers index showed Friday.

The S&P Global Flash Composite Output Index--which gauges activity in the manufacturing and services sectors--rose to 53.3 in March from 50.1 in February, the highest level since May. The indicator suggests that the private-sector economy expanded as it came in above the 50 no-change threshold.

The uptick in activity was led by renewed demand for services providers, which saw orders increase for the first time since September.

"The PMI is broadly consistent with annualized gross domestic product growth approaching 2%, painting a far more positive picture of economic resilience than the declines seen throughout the second half of last year and at the start of 2023," S&P Global Chief Business Economist Chris Williamson said.

Activity increased at services providers and contracted at manufacturers, albeit at a softer pace than the previous month, the data showed.

The flash U.S. services PMI increased to 53.8 from 50.6, the highest reading in 11 months and beating the 50.3 consensus forecast from economists polled by The Wall Street Journal.

The upturn was driven by stronger demand conditions, with new orders increasing again and an upturn in new sales, S&P Global said.

"It will be important to assess the resilience of this demand in the face of the recent tightening of interest rates and the uncertainty caused by the banking sector stress, which so far only seems to have had a modest impact on business growth expectations," Mr. Williamson said.

The U.S. manufacturing PMI rose to 49.3 from 47.3, above economists' expectations of 47.0 and the highest level in five months.

Goods producers reported an increase in production over the month but new orders continued to contract, the report said. This improvement likely is partly driven by easing supply-chain bottlenecks, which are letting manufacturers go through accumulated order backlogs, it said.

Inflation pressures persisted in March, according to the survey. Selling prices accelerated, and input costs softened somewhat but continued to increase driven by faster wage growth, S&P Global said.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

March 24, 2023 10:27 ET (14:27 GMT)