U.S. Business Growth Moderates in October as Selling-Price Inflation Accelerates

U.S. business activity expanded at a slightly slower pace in October, but a jump in the prices companies charged customers raised fresh questions about the inflation outlook. S&P Global’s flash composite purchasing managers’ index fell to 57.6 from 58.4 in September, according to Friday’s survey figures reported by Reuters and Dow Jones Newswires.

The decline marked a loss of momentum rather than a downturn. The composite gauge remained comfortably above 50, the threshold separating expansion from contraction, and October still registered one of the strongest readings in more than four years. Businesses were growing quickly even as the latest survey suggested that the pace had eased from September’s exceptional level.

The sharper concern was pricing. S&P Global’s measure of output prices rose to 59.8 from 58.4, its highest reading since August 2022. The survey tracks how widely companies report raising or lowering selling prices, not the percentage increase in prices paid by American households. A higher reading nevertheless suggests that price pressures were spreading across both manufacturing and services as the fourth quarter began.

Strong orders cushion slower services activity

Services remained the principal source of moderation. The flash services PMI slipped to 57.9 from 58.8 in September, whereas the manufacturing PMI edged up to 56.0 from 55.9. Those comparisons reveal a mixed change in speed, not a divide between growing and shrinking sectors: both readings continued to show expansion. The manufacturing PMI reached its highest level in 53 months, according to reporting on the release.

Manufacturing’s headline PMI is also different from its narrower output measure. The factory output index was 55.8 in October, reflecting an increase in production but not the same calculation as the 56.0 headline index. Keeping the two measures separate matters because the headline manufacturing PMI draws on several elements of factory business conditions rather than output alone.

New business was an important counterweight to the moderation in services activity. The composite new-orders measure increased to 58.2 from 58.1, its highest level since March 2022. S&P Global’s account of the survey pointed to firm domestic demand, some advance purchasing and improved export orders. Those are reported drivers of the order gains, not proof that demand will keep rising at the same rate through the quarter.

October follows an unusually strong finish to the third quarter. In its September flash PMI commentary, S&P Global reported that the composite index had reached 58.4, the highest level since July 2021, after climbing from 56.0 in August. Its September survey also found the strongest payroll growth in more than four years. Against that comparison, a lower October composite index still represents a high level of reported activity, rather than a reversal of the preceding expansion.

Hiring sent a similarly mixed message. Overall employment growth eased from September’s unusually rapid pace, yet manufacturers added staff at a rate not seen since March 2012. Firms appeared to be responding to stronger order books and the need for greater productive capacity. These figures describe hiring conditions among businesses in the PMI sample; they are not a substitute for the government’s payroll employment count.

The strain on supply also became more pronounced. A survey gauge of supplier delivery times dropped to 38.1 from 40.9, signaling a further deterioration in manufacturers’ delivery performance. Under this measure, a lower reading indicates that suppliers are taking longer to deliver. S&P Global’s survey pointed to the sharpest delays in more than four years as unfilled work accumulated. Growing demand can support production plans, but persistent bottlenecks can delay fulfillment and add costs before extra capacity becomes available.

Faster selling-price inflation despite a slight easing in input costs

The October survey’s most uncomfortable contrast was between strong customer orders and the ability of firms to charge more. With backlogs rising and supply chains stretched, companies reported passing higher costs through to their own customers. S&P Global chief business economist Chris Williamson attributed the pressure in part to more expensive oil and intensifying supply constraints, according to the October reporting.

Input cost inflation was still high, although its index eased to 64.9 from 65.9 in September. That decline does not mean businesses were paying less for materials or services in absolute terms. It indicates that the pace or breadth of reported input-cost increases moderated. At the same time, a rise in the selling-prices index indicates more widespread or faster reported increases in what companies charged customers.

This distinction helps explain why a small cooling in an input-cost gauge can coexist with an acceleration in selling-price inflation. Businesses may pass through earlier cost increases with a delay, and stronger demand can make it easier to do so. The survey identifies the direction and breadth of price changes reported by respondents, but cannot establish exactly how much any eventual consumer-price increase will be.

Official inflation figures had already shown renewed pressure before October’s PMI results. The Bureau of Labor Statistics’ September consumer price report showed a 0.6% monthly increase in the consumer price index, following a 0.4% rise in August. Prices were 3.7% higher than a year earlier. Gasoline prices rose 9.1% in September, accounting for more than half of the month’s overall increase, according to the agency.

The two sets of data should not be treated as interchangeable. The government’s consumer price index measures changes in the prices paid for a representative basket of goods and services. The PMI output-prices index instead summarizes businesses’ answers about changes in charges. October’s 59.8 PMI reading does not mean that prices rose 59.8%, and it cannot be directly converted into a future CPI number. It is an early signal of pricing behavior, not an official inflation rate.

Other measures also suggest that companies have had to contend with difficult cost conditions. The government’s September producer price index for final demand rose 1.3% from August, the largest monthly gain since March 2022, according to the Bureau of Labor Statistics. That measure describes prices received by domestic producers and covers a different period from October’s flash survey. Those survey results and earlier government data give policymakers reason to examine whether higher energy and supply costs are spreading through a broader range of prices.

Federal Reserve decision approaches as growth remains firm

The inflation signal complicates the interest-rate picture because weaker price momentum has not yet been accompanied by a marked decline in business demand. The Federal Reserve raised its benchmark policy-rate target by a quarter of a percentage point in September, to a range of 3.75% to 4.00%. In its September statement, the central bank described economic activity as expanding at a solid pace but said inflation remained elevated.

A stronger pricing survey is not, by itself, a decision rule for the Fed. Officials weigh several indicators, including actual consumer and producer prices, labor-market conditions and the outlook for economic growth. The latest PMI presents a difficult mix: private businesses report that output and orders are still rising quickly, even as selling-price inflation accelerates. It does not prove that the central bank will raise rates at its next meeting.

S&P Global’s October economic outlook, published before the flash release, had already warned that renewed energy and commodity-price pressures could delay the return to lower inflation. Its projections called for further policy tightening before year-end, but those are the firm’s forecasts, not commitments by the Federal Reserve. The October flash survey adds a near-term observation to that debate without resolving how persistent the price increases will be.

The Federal Open Market Committee is scheduled to meet October 27 and 28. Ahead of that decision, the difference between slower growth and outright weakness is crucial: the composite PMI is still far above the 50 mark, and the new-orders reading has strengthened. Businesses’ ability to increase charges under those conditions is a more direct concern for the inflation outlook than the 0.8-point decline in the composite index alone.

The October readings are preliminary and may change when the full monthly survey is compiled. S&P Global has scheduled its final U.S. manufacturing PMI for November 2 and the services and composite releases for November 4. Those updates will show whether the strong order inflow, supply delays and acceleration in reported selling prices persisted in the fuller October sample.