Consumers have become picky and businesses have been selling merchandise accumulated before the import duties were imposed
[WASHINGTON] US business activity slowed for a second straight month in September, and though firms complained about tariffs increasing costs, they were not raising prices for their goods and services, which bodes well for the inflation outlook.
The survey from S&P Global on Tuesday (Sep 23) suggested that businesses were absorbing most of the import duties and supported some economists’ argument that tariffs would not have a lasting impact on inflation.
Federal Reserve chair Jerome Powell said on Tuesday a reasonable base case was that tariffs would result in a one-time increase in the price level, “spread over several quarters and show up as somewhat higher inflation during that period”.
The US central bank chief added that “near-term risks to inflation are tilted to the upside”.
Though inflation has picked up in recent months, prices have so far not skyrocketed as had been feared when US President Donald Trump started rolling out his sweeping tariffs. Consumers have become picky and businesses have been selling merchandise accumulated before the import duties were imposed.
“Producers are absorbing a substantial portion of the tariffs,” said Samuel Tombs, chief economist at Pantheon Macroeconomics. “The S&P’s survey should reassure the Fed about the inflation outlook.”
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S&P Global’s flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, slipped to 53.6 this month from 54.6 in August. A reading above 50 indicates expansion in the private sector.
Activity slowed in manufacturing, with the flash PMI easing to 52 from 53 last month. The services flash PMI ticked down to 53.9 from 54.5 in August.
Businesses are facing higher input prices
The survey’s measure of prices paid by businesses for inputs increased to 62.6 from 60.8 last month, noting that “tariffs were again overwhelmingly cited as the principal cause of further cost increases”.
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But its gauge of prices charged by businesses for goods and services fell to 56 from 58.3 in August as “firms across both manufacturing and services often reported difficulties passing higher costs on to customers due to weak demand and growing competition”.
“The survey data are nevertheless still indicative of consumer inflation remaining above the central bank’s 2 per cent target in the coming months,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
The Fed resumed cutting interest rates last week, lowering the central bank’s benchmark overnight interest rate by 25 basis points to the 4 to 4.25 per cent range, mostly in response to a weakening labour market.
New orders received by businesses fell slightly this month, with most of the slowdown in manufacturing.
Export orders remained subdued while employment moderated. S&P Global noted “a higher incidence of companies unable or unwilling to fill vacant positions,” adding “more of a focus on job losses due to cost-cutting” was evident in manufacturing.
Labour market conditions have softened, with non-farm payrolls gains averaging only 29,000 jobs per month in the three months to August compared to 82,000 during the same period last year. REUTERS
