U.S. Business Activity Report – 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, remained little changed at 54.4 in September 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, that suggested the economy maintained solid growth momentum in the third quarter.

However, uncertainty about the Nov. 5 presidential election is weighing on business sentiment. The services sector continued to expand steadily, although manufacturing fell to a 15-month low.

Average prices charged for goods and services increased at their fastest pace since March, marking the first rise in selling price inflation in four months.

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

Rising costs, particularly in the services sector due to wage increases, were attributed to this rise. Although this suggests building price pressures, evidence indicates inflation is cooling.

The labor market has significantly slowed 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” reported 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, marking the first reduction in borrowing costs since 2020, reflecting policymakers’ commitment to sustaining a low unemployment rate.

Chris Williamson, chief business economist at S&P Global Market Intelligence, stated, “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 while seeking 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 had forecast the sector index, comprising 10.3% of the economy, to rise to 48.5. The flash services PMI dipped to 55.4 from 55.7 in August, broadly in line with economists’ expectations for a reading of 55.2.