U.S. Business Activity Steady in September

(Reuters) – U.S. business activity was steady in September, but average prices charged for goods and services rose at the fastest pace in six months, potentially hinting at a pickup in inflation in the coming months.

S&P Global reported that its flash U.S. Composite PMI Output Index, which tracks manufacturing and services sectors, was little changed at 54.4 this month compared to a final reading of 54.6 in August. A reading above 50 indicates expansion in the private sector.

September's reading aligns with reports this month, including retail sales, suggesting the economy maintained its solid growth momentum in the third quarter.

However, uncertainty about the Nov. 5 presidential election is weighing on business sentiment. The services sector expanded at a steady pace, while manufacturing slumped to a 15-month low.

Average prices charged for goods and services rose at their quickest pace since March, marking the first acceleration of selling price inflation in four months.

The survey's measure of prices paid by businesses for inputs increased to a one-year high of 59.1 from 57.8 last month. Its gauge of prices charged rose to 54.7 from 52.9 in August.

Rising costs, primarily in the services sector linked to wage raises, were attributed to the increase. At face value, this suggests that price pressures are building up again, but there is growing evidence that inflation is cooling.

The labor market has slowed considerably this year, with the unemployment rate rising above 4.0% from 3.4% in April 2023, likely no longer posing a threat to inflation.

The Federal Reserve's "Beige Book" report this month noted that, as competition for workers has eased and staff turnover has fallen, firms felt less pressure to increase wages and salaries.

Last week, the U.S. central bank cut interest rates by 50 basis points to the 4.75%-5.00% range, the first reduction in borrowing costs since 2020, which Fed Chair Jerome Powell said was meant to demonstrate policymakers' commitment to sustaining a low unemployment rate.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said, "The early survey indicators for September point to an economy that continues to grow at a solid pace. A reacceleration of inflation is also signaled, suggesting the Fed cannot totally shift its focus away from its inflation target as it seeks to sustain the economic upturn."

The S&P Global survey's measure of new orders received by private businesses fell to 52.4 from 53.0 in August. Private sector employment rose, though it remained at weak levels.

The survey's flash manufacturing PMI dropped to a 15-month low of 47.0 from 47.9 in August. Economists polled by Reuters had forecast the index for the sector, which accounts for 10.3% of the economy, rising to 48.5. Its flash services PMI dipped to 55.4 from 55.7 in August, broadly in line with economists' expectations for a reading of 55.2.