U.S. Composite Index Falls to 57.6 in October as Price Pressures Accelerate
Key Facts
U.S. business activity growth slowed in October, with the preliminary composite output index falling to 57.6 from 58.4 in September, according to S&P Global data cited by Dow Jones Newswires. The index nevertheless remained above the 50-point level that separates expansion from contraction, indicating continued private-sector growth. The decline followed the index’s highest reading in five years in September, according to Reuters. Sectoral indicators showed manufacturing rising while services retreated from their previous levels. At the same time, new orders bolstered demand growth, while output prices accelerated to levels not seen since 2022.
The preliminary manufacturing PMI rose to 56.0 in October from 55.9 in September, its highest level in 53 months, according to Squawk News. By contrast, the services activity index fell to 57.9 from 58.8 the previous month. The composite index therefore declined despite an improvement in the manufacturing reading, with all three readings remaining above the 50-point expansion threshold. Demand strength extended beyond the overall activity reading: the new orders index rose to 58.2 from 58.1 in September, its highest reading since March 2022. S&P Global said companies’ precautionary inventory building helped support domestic demand.
Demand strength extended to new orders, which reached their highest level in more than four and a half years, according to a summary published by InvestingLive. That signal is consistent with the orders index rising to 58.2, compared with 58.1 in September, according to data cited by Reuters. S&P Global attributed part of domestic demand to precautionary inventory building, adding context to the increase in recorded orders. Employment also remained strong, with the fastest pace of growth since June 2022, according to the same summary. Companies’ expectations for output over the next 12 months fell compared with September, but remained the second-highest reading this year. Together, the indicators point to strong demand and accelerating employment, alongside a relative decline in companies’ optimism about future output.
Prices emerged as a growing source of pressure in October’s data, with the output prices measure rising to 59.8 from 58.4 in September, its highest reading since August 2022, according to Reuters. S&P Global said oil prices, supply-chain bottlenecks and rising backlogs put pressure on costs. It also reported that the overall increase in prices for goods and services was the largest since August 2022. This coincided with a decline in the composite index from September, putting slower activity alongside accelerating output prices. On September 23, the yield on the 10-year U.S. Treasury rose 13.7 basis points to 5.104%, its highest level since July 2007, according to Kiplinger. The yield move dates to September and does not represent a market reaction to October’s data.
In the view of Chris Williamson, chief economist at S&P Global Market Intelligence, the output readings “are consistent with GDP growth at an annual rate of 5%, following the 4% expansion indicated by the readings for the third quarter.” Separately, economists expected the government’s advance estimate to show third-quarter growth of around 3.0% on an annual basis, driven mainly by consumer spending and corporate investment in artificial intelligence, according to Reuters. The Federal Reserve raised its benchmark overnight interest rate by 25 basis points in September to a range of 3.75%-4.00%. Economists expect the central bank to leave rates unchanged at its next meeting, then raise borrowing costs again in December, according to Reuters. The Federal Open Market Committee meets on October 27 and 28, with the press conference scheduled for October 28. On October 29 at 8:30 a.m. Eastern time, the Bureau of Economic Analysis plans to publish the advance estimate of third-quarter GDP and the September personal income and spending report.