U.S. Business Activity Growth Slows to 16-Month Low Amid Tariff Pressures

The pace of business activity expansion in the United States slowed to its lowest level since the beginning of 2023, with the initial composite output index for manufacturing and services falling 2.3 points to 51.2 in April. This decline reflects a broader economic slowdown, as the indicator for future output dropped 3.5 points to its lowest level since October 2022. The slowdown in business activity is attributed to heightened economic uncertainty, supply chain concerns, and a decline in exports, which have offset any positive impacts from tariffs.

The service sector, in particular, experienced its largest decline since January 2023, with the service PMI initial value recorded at 51.4, marking a two-month low. This trend is indicative of a more subdued economic growth rate, estimated at 1.0% on an annualized basis, which is considered moderate. The overall commercial activity in the U.S. has reached its lowest point in 16 months, with businesses facing increased pricing pressures due to tariff policies. The outlook for the next year has also diminished, reaching one of the lowest levels since the onset of the pandemic.

The manufacturing sector, however, showed some resilience, with output growth remaining above the long-term average. Despite the challenges, the U.S. economy continues to navigate through a complex landscape, with businesses adapting to the evolving market conditions. The data collection period for this survey was from April 9 to April 22.

Adding to the complexity, businesses are accelerating price increases. The composite price index from S&P Global rose to its highest level in over a year, driven primarily by tariffs, rising import costs, and increasing labor costs. The input price index showed a slight decline but remained significantly higher than the same period last year. The report indicated that manufacturers' input cost growth reached its highest level since August 2022, as suppliers passed on cost pressures from tariffs and a weaker dollar to businesses.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that "tariffs are widely seen as the main driver of price increases, but labor costs are also rising steadily, leading to the fastest pace of business price increases in over a year." Manufacturing orders showed a slight improvement from the previous month, while the new business index for the service sector declined by one point. New export orders in the service sector experienced the most significant contraction since the beginning of 2023.