US Growth Slows Sharply in April as Tariffs Fuel Inflation and Business Confidence Wanes

U.S. sentiment data remained subdued with the preliminary composite PMI slipping, but the weaker print hasn’t derailed the early rally. Soft sentiment outpacing hard data has become a defining feature of this cycle—call it “bitter is the new black.” Even Fed Chair Powell acknowledged in January that actual economic performance continues to outpace gloomy survey responses. Still, the tone of the commentary remains cautious, and we’re watching closely for any cracks that may show up in the quarters ahead.

US business activity growth cooled sharply in April, with the Flash S&P Global Composite PMI Output Index falling to 51.2 from 53.5 in March—a 16-month low that underscores mounting economic uncertainty. The services sector saw the steepest pullback, as the Services Business Activity Index dropped to 51.4, its lowest level in two months and the second-weakest expansion in a year. While manufacturing managed a modest rebound—rising to 50.7 from 50.2, with output up to 50.2—factory growth was barely positive, and was held back by a sharp decline in export orders. Across both sectors, business sentiment about the year ahead slid to one of its lowest levels since the pandemic, reflecting increasing caution around trade policy and the broader economic outlook.

Demand conditions deteriorated across the board. New business inflows in services showed only a minor uptick, with foreign demand dropping significantly—the sharpest fall since January 2023. Manufacturing fared little better; although domestic orders helped push factory activity marginally into expansion territory, export orders fell notably, attributed to ongoing tariff pressures. Several manufacturers reported short-term gains from reshoring and domestic substitution, but concerns about long-term demand, costs, and supply constraints weighed heavily. The split between relatively stable manufacturing hopes and weakening service sector confidence reflects the increasingly uneven impact of trade and policy changes.

Employment trends softened but remained mildly expansionary. April marked the fourth increase in employment over the past five months, but hiring slowed from March’s pace. The slowdown was more evident in manufacturing, where job losses were reported for the first time since October, likely due to worsening demand and higher input costs. Services continued to see slight gains in hiring, although firms cited caution around labor expansion amid broader macroeconomic uncertainties. Elevated payroll expenses, along with reduced workloads and trade disruption, contributed to a more cautious hiring posture across both sectors.

Inflationary pressures intensified meaningfully in April, with the sharpest increase in selling prices for goods and services in over a year. The manufacturing sector led the inflation surge, with output charges rising at the fastest rate in 29 months, driven by a combination of higher input prices, tariffs, and currency-related cost increases. Service sector inflation also accelerated, with wages and raw material costs pushing prices up at the second-strongest pace in six months. Overall, price hikes were closely tied to tariff-linked supply disruptions and rising import costs, suggesting the inflation impulse could persist—particularly if trade tensions continue to escalate. As growth moderates and confidence weakens, April's report presents a murky near-term outlook for the US economy, with inflation once again complicating the Federal Reserve’s policy path.