US Business Activity Cools as Growth of Selling Prices Eases

US business activity expanded in September at its slowest pace in three months, with the S&P Global flash composite output index falling to 53.6. This deceleration, driven by cooler demand, is restricting companies' ability to raise selling prices and consequently limiting their capacity to offset tariff-related costs.

Analysis

US business activity shows signs of cooling, with the S&P Global flash composite output index for September falling by 1 point to 53.6. While this figure still indicates expansion (above 50), it marks the slowest pace of growth in three months. The deceleration is primarily attributed to a downturn in demand, which is directly impacting corporate pricing power. This constrained ability to raise selling prices presents a significant headwind for companies, particularly in their efforts to offset the financial impact of tariffs. The confluence of slowing growth and weakening pricing power suggests potential for margin compression across various sectors, signaling a moderately negative shift in the near-term economic outlook.

Key Decisions for Investors

• Given the deceleration in business activity and eroding corporate pricing power, investors should consider adopting a more cautious stance toward cyclical sectors highly sensitive to changes in demand.
• It is prudent to scrutinize companies with significant tariff exposure, as their profit margins are at increased risk in an environment where passing on costs to consumers is becoming more difficult.
• The easing of price growth could temper inflation expectations and influence future central bank policy, making it important to monitor upcoming inflation data and Federal Reserve communications for potential shifts in monetary strategy.