US Business Activity Continues to Expand

US private-sector business activity maintained a strong pace of expansion in October, despite a modest decline in the Composite Purchasing Managers’ Index. The index fell to 57.6 from 58.4 in September, marking its lowest reading in two months.

Despite the decrease, the latest reading indicated the second-strongest increase in business activity since March 2022. The data suggest that economic momentum remained robust, with businesses continuing to benefit from stronger demand across domestic and international markets.

The decline in the headline index points to a moderation in the pace of growth rather than a contraction. Business activity remained firmly in expansion territory, while other indicators showed improving demand and continued hiring.

New Orders and Export Sales Strengthen

Demand indicators improved during October. New orders increased to their highest level in more than four and a half years, while export sales recorded their strongest gain since May 2022.

The improvement in new business suggests that companies continued to attract customers despite mounting cost pressures. Stronger export sales also indicate that demand extended beyond the domestic market.

These developments may support business activity in the coming months if companies can sustain order growth and manage their operating costs. However, the available data do not establish whether the current pace of demand will continue.

Employment Growth Accelerates

Employment expanded at its fastest pace since June 2022 as companies increased staffing to meet stronger demand and address growing backlogs.

The acceleration in hiring provides further evidence of continued business confidence and operational activity. Companies appear to be adding capacity in response to the volume of incoming work, supporting the broader picture of economic resilience.

At the same time, stronger employment and demand may contribute to continued cost pressures if businesses face constraints in meeting their staffing and production requirements. The PMI figures alone, however, do not establish the extent to which hiring is translating into broader wage or inflation pressures.

Rising Input Costs Push Selling-Price Inflation Higher

Cost pressures remained a significant concern in October. Input costs rose at their fastest pace since November 2022, excluding the increase recorded in September. Businesses also raised selling prices at the fastest rate since August 2022.

The combination of strong demand and accelerating prices presents a challenge for the economic outlook. Businesses may continue to pass higher input costs on to customers, potentially sustaining inflation even as the pace of overall activity moderates.

For policymakers and financial markets, the latest figures highlight the tension between economic resilience and the risk that inflationary pressures could remain elevated.

Business confidence regarding the year ahead weakened slightly but remained at its second-highest level this year, indicating that expectations were still relatively strong despite rising costs.

What Investors Should Watch Next

Investors will monitor whether business activity remains near current levels and whether the strength in new orders and employment continues into subsequent months. Further evidence of rising input costs and selling prices will also be important in assessing the inflation outlook.

Trading Economics’ models and analyst expectations project the US Composite PMI at 54.0 by the end of the quarter and around 53.0 in 2027. These projections imply a moderation from October’s reading, while remaining above the 50-point threshold associated with expansion.

The next data releases will help determine whether the current combination of strong activity and rising prices persists or gives way to slower growth and easing inflationary pressure.