US Business Activity Near Multi-Year High, but Prices Rising Fastest Since 2022

The US economy is growing at a pace not seen outside the pandemic reopening since 2015 — and it is now generating the fastest price increases in more than four years, a combination that puts the Federal Reserve in a delicate position ahead of its next policy decision.

S&P Global's flash composite PMI index, released Friday, fell a modest 0.8 points to 57.6 in October — still the second-highest reading since 2022. Any reading above 50 signals expansion.

The headline growth figure, however, was accompanied by a sharper warning: a gauge of selling prices rose at the fastest pace in more than four years, driven by rising energy, fuel, freight and raw material costs, compounded by worsening supply-chain strains.

Cost pressures remain a key concern, notably as the renewed surge in oil prices reverberates through to impact a wide variety of goods and services.— Chris Williamson, Chief Business Economist, S&P Global Market Intelligence

Demand is the engine behind both the growth and the price pressure. New orders — a forward-looking gauge of demand — posted their fastest growth in four and a half years in October. Firms responded by hiring: the composite employment index reached its second-highest level in four years, and the manufacturing sub-index showed factory headcount growing at its fastest pace since 2012.

Manufacturing was a particular bright spot. The overall manufacturing index edged up to 56, its strongest reading since May 2022, while a gauge of activity at service providers eased but remained firmly in expansion territory.

Supply chains are showing signs of strain not seen in years. Supplier delivery times lengthened by the most since 2022, with S&P Global citing material and labor shortages, overloaded suppliers and shipping delays as contributing factors — the same bottleneck dynamics that fed inflation during the post-pandemic period.

Outside the pandemic reopening, US businesses are enjoying their strongest period of growth since 2015.— Chris Williamson, Chief Business Economist, S&P Global Market Intelligence

Three forces have driven the expansion this year, according to Bloomberg: strong consumer spending, investment tied to artificial intelligence, and defense outlays. Looking into 2027, forecasters surveyed by Bloomberg News raised their estimates for private investment growth both in the third quarter and across the full year — with AI and related technologies expected to continue supporting demand.

The data land at a sensitive moment. The Federal Reserve's next policy decision follows this release, and the combination of near-peak growth and accelerating prices — particularly in energy and freight — complicates any case for near-term rate cuts.

Why it matters — Surging prices alongside peak-level growth will intensify scrutiny of the Federal Reserve's next interest rate decision, with implications for borrowing costs, inflation and the broader economic outlook heading into 2027.

Reported by yahoo.com, finance.yahoo.com, investing.com, seekingalpha.com, reuters.com, bloomberg.com