By Lucia Mutikani
WASHINGTON, Oct 23 (Reuters) – US business activity slowed modestly in October, though robust demand allowed companies to raise prices for goods and services, a sign that inflation could increase further and remain persistently high in the coming months.
S&P Global said on Friday its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, slipped to 57.6 this month from a five-year high reading of 58.4 in September. A reading above 50 indicates expansion in the private sector. Strength in manufacturing was offset by a slight pullback in the vast services sector.
The PMI suggested the economy started the fourth quarter on solid footing following what is expected to have been a strong performance in the July-September quarter. Economists expect the government’s advance gross domestic product report next week to show the economy growing at around a 3.0% annualized rate last quarter, mainly driven by consumer spending and business investment in AI.
The economy has so far not shown any signs of buckling under the weight of the oil price shock stemming from the US-Israeli war with Iran, with savings, generous tax returns in the spring, tariff refunds, a strong stock market performance and corporate profits providing a cushion. Economists warned that the inflation fallout from the drawn-out Middle East conflict was likely to slow consumer spending this quarter.
The survey’s measure of new orders received by businesses edged up to 58.2 this month, the highest level since March 2022, from 58.1 in September. The increase was mostly in the services sector, with S&P Global noting “rising domestic demand, boosted partly by precautionary stock building” and growth in exports.
Its gauge of prices for output rose to 59.8, the highest reading since August 2022, from 58.4 in September. Businesses across manufacturing and services sectors raised prices. Delivery performance by suppliers to manufacturers deteriorated further. The survey’s measure of suppliers’ delivery times dropped to a more than four-year low of 38.1 from 40.9 in September.
SUPPLY BOTTLENECKS INTENSIFYING
“Cost pressures remain a key concern,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “Supply chain bottlenecks have meanwhile intensified, and order book backlogs are growing, making it easier for companies to pass higher costs on to customers.”
Consumer and producer prices increased strongly in September, the government reported this month, raising concerns that inflation was fanning out across the economy. The Federal Reserve in September raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4.00% range.
Economists expect the US central bank to stand pat at its meeting next week and hike borrowing costs again in December.
The survey’s measure of prices paid by businesses for inputs slipped to a still-high 64.9 from 65.9 in September. Manufacturers, however, faced higher prices this month, with the index still near four-year highs.
Though overall employment dipped after surging in September, manufacturers boosted headcount. A measure of factory employment increased to the highest level since March 2012, with Williamson saying that companies were seeking “to boost capacity to fulfill stronger customer demand.”
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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