US Business Activity Cools to 57.6 in October as Selling Prices Rise at the Fastest Pace Since 2022

US business activity slowed modestly in October but stayed firmly in growth territory, S&P Global reported on Friday, as strong demand let companies raise their selling prices at the fastest pace in more than four years.

The flash US Composite PMI Output Index, which tracks manufacturing and services together, eased to 57.6 in October from 58.4 in September, a five-year high. Any reading above 50 means activity is expanding. Strength in manufacturing offset a slight pullback in the much larger services sector, and the survey pointed to a solid start to the fourth quarter.

Factories pick up as services ease off a peak

The manufacturing PMI rose to 56.0 in October, its highest level in 53 months, beating market expectations of 55.6. The services PMI eased to 57.9 from 58.8 in September, in line with forecasts.

Demand held up. The survey measure of new orders edged up to 58.2, the highest level since March 2022, from 58.1 in September, with the increase led by services. S&P Global said rising domestic demand was boosted partly by precautionary stock building, and export orders also grew.

Hiring split the same way. Overall employment dipped after a surge in September, but factories added staff at the fastest pace since March 2012. Chris Williamson, chief business economist at S&P Global Market Intelligence, said companies were seeking to boost capacity to meet stronger customer demand. He said the output readings are consistent with the economy growing at a 5 percent annualized rate at the start of the fourth quarter, after a 4 percent pace was signalled for the third quarter.

Prices and bottlenecks point the other way

The harder news sat in prices and supply chains. The index of prices companies charge for their output rose to 59.8, the highest reading since August 2022, up from 58.4 in September, with firms in both manufacturing and services raising prices. Prices paid for inputs eased slightly to 64.9 from 65.9 but stayed high, and manufacturers faced costs still near four-year highs.

Supplier delivery times to factories worsened again, with that index falling to 38.1 from 40.9, its lowest in more than four years. "Cost pressures remain a key concern," Williamson said. He said supply chain bottlenecks have intensified and order backlogs are growing, which makes it easier for companies to pass higher costs on to customers.

The Fed meets next week

The survey lands days before the Federal Reserve meets on October 28. The central bank raised its benchmark rate by 25 basis points in September, to a range of 3.75 percent to 4.00 percent, and economists expect it to hold steady next week and raise rates again in December. Government data out this month showed consumer and producer prices rising strongly in September, which adds to the case the survey makes: demand is strong enough that firms can keep passing costs through.

The wider economy has so far absorbed the oil price shock from the US-Israeli war with Iran without buckling. Savings, generous spring tax returns, tariff refunds, a strong stock market and healthy corporate profits have cushioned households and businesses, and economists expect next week's advance report to show gross domestic product grew at about a 3.0 percent annualized rate in the July to September quarter, driven by consumer spending and business investment in artificial intelligence. The warning in the October survey is about what comes next: economists say the inflation fallout from the Middle East conflict is likely to slow consumer spending this quarter, even as factories are hiring to meet orders they already have.