US business activity rises in October; price pressures easing

WASHINGTON (Reuters) - U.S. business activity increased in October amid strong demand, and firms raised prices for goods and services at the slowest pace in nearly 4-1/2 years, indicating that the economy started the fourth quarter in solid shape.

S&P Global said on Thursday that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, rose to 54.3 this month from a final reading of 54.0 in September. A reading above 50 indicates expansion in the private sector. Retail sales data has suggested that economic growth gathered more speed in the third quarter.

The Atlanta Federal Reserve is currently estimating gross domestic product increasing at a 3.4% annualized rate last quarter. The economy grew at a 3.0% pace in the April-June quarter. The government is scheduled to publish its advance estimate of third-quarter GDP next Wednesday.

"October saw business activity continue to grow at an encouragingly solid pace, sustaining the economic upturn that has been recorded in the year to date into the fourth quarter," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

The survey's measure of average prices charged by businesses for goods and services fell to 51.6, the lowest reading since May 2020, from 54.6 in September. Inflation-weary consumers have been pushing back against higher prices by trading down and buying cheaper substitutes.

That was confirmed by the Federal Reserve's "Beige Book" on Wednesday which said reports on consumer spending were mixed in early October, "with some districts noting shifts in the composition of purchases, mostly toward less expensive alternatives."

Its measure of prices paid by businesses for inputs slipped to 58.1 from 58.8 last month.

The moderation in both measures suggested that a pick-up in consumer prices in September was likely temporary.

Economists expect inflation to continue subsiding to the Fed's 2% target. The U.S. central bank embarked last month on its easing cycle with an unusually large half-percentage-point cut in its policy rate, lowering it to the 4.75%-5.00% range, amid rising labor market fears. The Fed hiked rates by 525 basis points in 2022 and 2023 to curb inflation.

With price pressures ebbing, demand is picking up. The survey's measure of new orders received by private businesses jumped to 54.2 from 52.5 in September.

Though employment levels remained depressed, S&P Global noted that the decline in service jobs was "often linked to the non-replacement of leavers rather than layoffs."

The survey's flash manufacturing PMI edged up to 47.8 from 47.3 last month. Economists polled by Reuters had forecast the index for the sector, which accounts for 10.3% of the economy, slipping to 47.5.

Its flash services PMI rose to 55.3 from 55.2 in September, topping economists' expectations for a reading of 55.0.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)