US business activity expanded at a slightly slower pace in October 2026, but the prices companies charged customers rose at their fastest pace in more than four years, highlighting a growing challenge for inflation control.
S&P Global's preliminary US Composite Purchasing Managers' Index (PMI) fell to 57.6 in October from 58.4 in September, according to figures released Friday, October 23. Although the reading declined from September's five-year high, it remained comfortably above the 50-point threshold that separates expansion from contraction.
More concerning for the inflation outlook, the survey's composite output-price index climbed to 59.8 from 58.4, its highest level since August 2022. Strong customer demand, rising operating costs and worsening supply constraints helped businesses pass higher costs on to their customers.
The figures, detailed in Reuters' October 23 report, suggest the US economy entered the fourth quarter with substantial momentum even as inflationary pressures intensified.
US Business Activity Expands at a Slower Pace
The October flash survey revealed different trends across manufacturing and services, the two sectors covered by the composite indicator.
The headline manufacturing PMI edged up to 56.0 from 55.9, reaching its highest level in more than four years. Meanwhile, the services business activity index declined to 57.9 from 58.8, indicating that the much larger services sector continued growing strongly, although less rapidly than in September.
Manufacturing output itself also moderated slightly. The distinction matters because the headline manufacturing PMI combines several indicators, including new orders, production, employment, supplier delivery times and inventories. An increase in the headline index therefore does not necessarily mean factory output accelerated.
October's composite PMI remained the second-highest reading since March 2022, signaling that the slowdown represented a moderation in exceptionally strong growth rather than a deterioration into contraction.
New orders increased at their strongest pace in more than four and a half years, with the survey's new-orders index reaching 58.2. Export demand also improved, while manufacturers reported stronger hiring as businesses sought additional capacity to meet orders.
These developments suggest that customer demand remained an important source of economic resilience, even as higher energy costs and supply-chain pressures created new challenges.
Strong Demand Adds to Inflation Pressures
The most significant warning in the October survey came from prices rather than production.
The composite output-price index rose to 59.8, the highest since August 2022, while the input-price index remained elevated at 64.9. These measures indicate that businesses continued experiencing substantial cost pressure and were increasingly raising the prices charged for their goods and services.
Energy costs were an important contributor. Higher transportation and production expenses affected businesses across multiple industries, while deteriorating supplier delivery times pointed to renewed pressure on supply chains.
At the same time, strong order books gave some companies greater scope to pass rising costs on to customers. When demand remains robust and production capacity becomes constrained, businesses may find it easier to increase selling prices without immediately losing sales.
That combination helps explain why inflation pressures can intensify even when the overall pace of business expansion slows.
The findings add another dimension to previously reported US consumer inflation pressures in September. However, business survey price indicators and official consumer inflation statistics measure different things and should not be treated as interchangeable.
What the PMI Price Index Actually Measures
A PMI reading is a diffusion index reflecting how widely business conditions are changing among surveyed companies. In the standard PMI interpretation, a reading above 50 indicates an increase, while a reading below 50 indicates a decrease.
Consequently, an output-price reading of 59.8 does not mean prices increased by 59.8%. Nor does the rise from 58.4 to 59.8 mean the official inflation rate increased by 1.4 percentage points.
Instead, the higher reading signals a stronger or more widespread tendency for surveyed businesses to raise their selling prices. S&P Global's PMI methodology explains how these survey measures are constructed and interpreted.
The distinction is particularly important when assessing inflation risk. Survey responses can provide an early indication of pricing trends, but they cannot establish the precise change in consumer prices measured by the Consumer Price Index (CPI) or the Personal Consumption Expenditures (PCE) price index.
Those official measures use different methodologies and provide the more direct evidence needed to assess consumer inflation.
Why the Inflation Signal Matters for the Federal Reserve
The October PMI figures present a difficult combination for the Federal Reserve: resilient business activity and employment alongside renewed evidence of persistent price pressures.
Strong economic growth can give policymakers more flexibility to keep interest rates elevated when inflation remains above target. However, sustained increases in energy and business operating costs can also weaken household purchasing power and eventually restrain economic activity.
The Federal Reserve raised its benchmark interest-rate target range to 3.75%–4.00% in September. Ahead of its next decision, economists surveyed by Reuters expected policymakers to leave rates unchanged in October, while another increase later in the year remained a possibility.
Those expectations are not official policy decisions. The central bank must assess incoming inflation, employment and economic activity data before determining its next move.
The latest survey adds to the uncertainty surrounding the Federal Reserve's interest-rate outlook, particularly because improving demand and higher selling prices can point toward continued inflation risks even as higher borrowing costs weigh on parts of the economy.
Importantly, the PMI report does not establish how much consumer inflation will increase, whether the pressures will persist, or whether another interest-rate rise is necessary. Those questions require broader evidence than a single preliminary business survey.
What to Watch in the Next Economic Reports
Several upcoming economic releases will help determine whether October's strong activity and rising prices represent a persistent trend.
The government's advance third-quarter GDP report, scheduled for October 29, will provide an official assessment of economic growth during July through September. Economists cited by Reuters expected approximately 3% annualized growth, although that forecast is distinct from both the official result and S&P Global's own survey-based growth estimates.
The October flash PMI figures will also be followed by the final manufacturing survey on November 2 and the final services and composite readings on November 4. Those reports may revise the preliminary data and provide additional detail on business conditions.
Official inflation figures, employment data and Federal Reserve communications will be equally important for assessing whether companies' higher selling prices translate into sustained consumer inflation.
For now, the October survey points to an economy that remains robust rather than one approaching contraction. Its principal warning is that strong demand and worsening cost pressures are occurring simultaneously, increasing the importance of forthcoming inflation data in determining the direction of US monetary policy.
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