Dive Brief:
- U.S. business growth surged this month at the fastest pace in more than five years, prompting companies to meet higher demand by increasing payrolls at the quickest pace since 2022, S&P Global said Wednesday.
- At the same time, supply chain delays worsened and backlogs of work rose at a faster pace, spurring inflation, S&P Global said. Higher energy prices also pushed up output costs and broad price pressures.
- “Business is clearly booming now in both manufacturing and services,” S&P Global Chief Business Economist Chris Williamson said. Although an “accumulation of uncompleted orders bodes well for the further expansion of output and capacity in the coming months, it also indicates that companies are developing more pricing power, and hence is a worry for the inflation outlook,” he said in a statement.
Dive Insight:
U.S. companies this year have grown more pessimistic about future price pressures, aligning with the gloomier outlook toward inflation among U.S. consumers.
Business expectations for inflation in 12 months rose to 2.4% this month from 2.2% in August and 1.9% in February, the Federal Reserve Bank of Atlanta said Wednesday, citing a survey.
“Today, inflation is our troublemaker,” Richmond Fed President Tom Barkin said Monday, noting that inflation has exceeded the Fed’s 2% for more than five years.
“The intensity and frequency of cost pressures are up — from tariffs and oil prices to be sure, but also from AI build-out spillovers, health care, transportation, or commodity prices,” he said.
Flagging persistent inflation, Fed policymakers on Sept. 16 increased the federal funds rate to a range between 3.75% and 4% in their first tightening in three years.
“Risks to achieving our inflation target have increased, while risks to the labor market have receded,” Fed Governor Michael Barr said Wednesday.
“We needed to recalibrate monetary policy to reflect the balance of risks to our mandate goals,” Barr said. “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” he said in a speech.
Higher fuel and transport costs this month pushed up average input costs for goods and services, increasing overall inflation to the highest level since October 2022, S&P Global said. Sales-price inflation also accelerated.
Growth in the service sector fueled most of the increase in overall business activity, S&P Global said, noting that its U.S. PMI Composite Output Index rose to 58.4 this month from 56 in August.
Manufacturing also showed strength, with output growth accelerating at the fastest pace since April 2022, S&P Global said.
The increase in backlogs of work prompted companies to hire more staff, S&P Global said, noting that employment expanded at the fastest pace since June 2022.
U.S. gross domestic product will increase 2.2% this year and 2.1% in 2027 “with strong AI-related investment somewhat offset by a slowdown in consumer spending and real income growth,” the Organization for Economic Co-operation and Development forecast Wednesday.
