US businesses report slower October growth as strong demand fuels price increases

US business activity grew modestly more slowly in October, while robust demand allowed companies to raise prices for goods and services. The report described this as a sign that inflation could rise further and remain elevated in the coming months.^[1]

Related coverage of two S&P business surveys said companies hired more workers to meet rising customer demand, pointing to continued economic strength early in the fourth quarter ahead of the holiday shopping season.^[2]

Rising customer demand gives businesses a reason to add workers and supports sales. Companies able to pass higher costs to customers have more room to protect profits, but those price increases raise customers’ bills and can keep inflation elevated. Both reports describe strong demand alongside price increases or efforts to pass costs through.^[1][2]

If that price pressure persists, the Federal Reserve may have less room to cut rates, leaving businesses that depend on borrowing waiting longer for financing relief.^[1] Treasury yields, benchmarks for many loans and bonds, rose on October 23: the two-year yield reached 4.69% from 4.65% the previous session, while the ten-year reached 5.00% from 4.96%. Those levels keep financing conditions challenging; the supplied evidence does not establish that the surveys caused the day's increase.

Impact

What to watch next

• October 28 Fed rate decision, economic projections and press conference: policymakers’ assessment of demand and inflation will help clarify the scope for lower borrowing costs.
• October 29 brings September core PCE inflation, a consumer-price measure excluding food and energy. Estimates of 0.3% monthly and 3.1% yearly growth, both above prior readings, provide a check on the surveys’ signal of persistent inflation.