US business activity cooled slightly in October, but the slowdown did little to ease price pressures. According to S&P Global's flash purchasing managers' index (PMI), the composite reading slipped to 57.6, down from the previous month. While that still signals expansion—anything above 50 indicates growth—the more striking number was the output prices index, which climbed to 59.8, its highest level since August 2022.
That combination—slower growth but faster price increases—is an uncomfortable one for the Federal Reserve. It suggests that even as the economy loses some momentum, companies still feel confident enough to pass higher costs onto customers. And with supply chains showing fresh signs of strain, that pricing power may not fade quickly.
What the survey shows
The flash PMI is an early snapshot of business conditions, based on responses from purchasing managers across manufacturing and services. A reading above 50 means activity is expanding, so 57.6 still points to a healthy pace of growth—just not quite as brisk as before.
The bigger red flag is inflation. The output prices index, which tracks the prices companies charge for their goods and services, rose to 59.8. That's the highest level in more than two years, and it signals that businesses are not only absorbing higher input costs but also successfully passing them along to buyers.
Why are they able to do that? Demand is still holding up—new orders increased in October. At the same time, supply lines are getting less reliable. The survey's suppliers' delivery times index dropped to 38.1, the lowest reading in over four years. A lower number means longer delays, which can push up costs and give companies more cover to raise prices.
In short, the economy is dealing with two forces at once: solid demand and worsening supply bottlenecks. That's a classic recipe for sticky inflation.
What it means for the Fed and your money
For the Federal Reserve, this is a tricky signal. The central bank has been trying to bring inflation down to its 2% target, and it has kept its benchmark interest rate at a range of 3.75% to 4.00% while it assesses the data. The Fed tends to focus more on persistent price pressures than on month-to-month swings in growth surveys, so a high output prices index could reinforce its cautious stance.
Most economists expect the Fed to hold rates steady at its next meeting. But the door remains open for another hike in December if inflation doesn't cool. That means borrowing costs tied to short-term benchmarks are unlikely to fall anytime soon.
For everyday investors and borrowers, the practical impact is straightforward: variable-rate debt—like credit cards, home equity lines of credit (HELOCs), and many small-business loans—will likely keep costing more for a while. If you're carrying a balance, the interest charges could stay elevated into the end of the year.
On the flip side, higher-for-longer rates can be a headwind for stocks, especially growth-oriented companies that rely on cheap borrowing. But it's not all bad news: banks and other lenders often benefit from wider interest margins, and some sectors, like energy, can thrive in an environment where prices are rising.
Looking ahead
The flash PMI is just one data point, but it's an early read on the economy's direction. Investors will be watching the final PMI release, as well as upcoming inflation reports and the Fed's policy decision, for clues about the path of rates.
In the meantime, the message from October's survey is clear: growth may be cooling, but inflation isn't going away quietly. That's a reminder that the Fed's job is far from done, and that the cost of money is likely to stay higher for longer than many hoped.
For a broader view of how these dynamics are playing out globally, consider the eurozone's recent slowdown, which shows similar pressures across the Atlantic. And for investors watching corporate earnings, the pressure on tech firms from AI pricing is another sign that pricing power is uneven across industries.
