US Business Activity Slows Down, But Prices Stay (Relatively) Calm

Intermediate | October 2, 2025

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A Second Month of Cooling

On September 23, 2025, S&P Global released fresh data showing that US business activity slowed for the second month in a row. The flash Composite PMI Output Index dropped to 53.6 from 54.6 in August. A reading above 50 still means growth, but this slip shows the pace of expansion is easing. Both the services and manufacturing sectors reported weaker momentum, with many companies pointing to tariffs as the main driver behind rising costs. This slowdown in US business activity has made many economists cautious about the strength of the recovery. (Reuters)

Rising Costs, But Not Rising Prices

Even though costs went up, businesses held back from passing those increases to customers. The index for prices paid rose to 62.6 from 60.8, showing companies are facing higher input costs. Yet the index for prices charged slipped from 58.3 to 56.0. In simple terms, firms are paying more but charging less than they could, because competition is strong and demand feels softer. This means profit margins are shrinking, and businesses are absorbing the impact instead of raising prices for consumers. For now, US business activity shows resilience in holding down price hikes. (Reuters)

What It Means for Inflation and the Fed

This situation could actually help keep inflation in check, at least for now. If companies continue to hold off on raising prices, the Federal Reserve will feel less pressure to act aggressively. In fact, the Fed recently cut interest rates by 25 basis points, bringing its target range to 4.00%–4.25%. That move suggests policymakers are trying to balance slowing growth with the need to control inflation. The OECD has also warned that the full effects of tariffs may still be coming, as many firms are relying on inventory buffers to soften the blow. Policymakers will keep watching US business activity closely for signs of stress. (Reuters)

Looking Ahead

The big question is what happens next. If margins stay squeezed, companies may eventually feel they have no choice but to pass costs along to consumers. That could push inflation higher and test the Federal Reserve’s strategy of carefully timed rate cuts. Consumers, already stretched, would likely feel the impact in their wallets. For now, though, the slowdown seems to be more about growth than runaway prices. The path of US business activity will determine how both companies and consumers adjust in the months ahead.

Vocabulary

Composite (adj.) – made of many parts or sectors
Example: The composite PMI mixes manufacturing and services data.
PMI (noun) – Purchasing Managers’ Index, a survey-based measure of business activity
Example: A PMI above 50 means expansion.
Tariff (noun) – a tax on imports
Example: The new tariff increased the cost of imported steel.
Input (noun) – materials or resources used in production
Example: Rising input costs squeezed profits for manufacturers.
Margin (noun) – the difference between cost and selling price
Example: Tight margins make it difficult for firms to invest more.
Absorb (verb) – to take in or bear the cost
Example: Companies absorb extra costs rather than pass them on.
Contract (verb) – to shrink or become smaller
Example: The manufacturing sector contracted slightly this month.
Buffer (noun) – something used as a cushion against shocks
Example: Firms used inventory buffers to absorb cost changes.
Breathing room (noun phrase) – extra space or flexibility
Example: The Fed has some breathing room before making deeper cuts.
Squeeze (verb) – to apply pressure (financially)
Example: Rising costs squeezed smaller companies more than big ones.

Discussion Questions (About the Article)

Why did U.S. companies see rising costs but hesitate to raise prices?
How does a PMI above 50 differ from one below 50?
What is the risk if firms eventually pass costs to consumers?
Why might the Fed be cautious about cutting rates too much or too fast?
Which sectors might feel the pressure first when margins shrink?

Discussion Questions (About the Topic)

In your country, when do businesses raise prices—immediately or gradually?
Do you think companies should always absorb costs or pass them to consumers?
How much do tariffs impact everyday prices in your daily life?
What factors make consumers more price-sensitive?
What other policies (besides rate cuts) could help firms facing cost pressures?

Related Idiom

“Walk a tightrope” – to act carefully between two dangers or extremes.
Example: Companies are walking a tightrope—balancing rising costs with customer expectations.

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This article was inspired by: Reuters