US business activity cools in October as price pressures build

what happened

S&P Global's advance October purchasing managers' indexes show US business activity still expanding, though at a slightly slower pace than in September. The manufacturing index edged up 0.1 point to 56, while the services index fell 0.9 point to 57.9. The composite index eased to 57.6 from 58.4, still well above the 50 line that separates contraction from expansion. New orders reached their highest level in four and a half years, and the selling prices component jumped to its highest since November 2022.

The University of Michigan's final October consumer sentiment reading came in at 48.0, 1.7 points above the initial estimate. Consumers expect 12-month inflation of 4.7%, unchanged from the initial survey, and five-year inflation expectations rose to 3.5% from 3.3%. The decline in current conditions was driven by a sharp drop in buying conditions for durable goods, which the survey linked to higher interest rates and affordability concerns.

why it matters

Rising selling prices and elevated inflation expectations strengthen the case for the Federal Reserve to keep policy tight, which matters for Treasury yields and the dollar. Weaker consumer sentiment, however, could restrain demand and weigh on companies that depend on domestic spending.

market impact

US Treasuries and dollar: firm inflation and expectations of tight policy support yields and the currency

tags

instruments