FX.co ★ US PMI points to 5% GDP growth, but soaring inflation leaves consumers worse off

US business activity neared a five‑year high, but the economic upswing is coming at the cost of record inflation. According to preliminary estimates, the S&P Global data shows the composite purchasing managers’ index (PMI) stood at 57.6 points in October, only marginally below September’s 58.4 points and comfortably above the 50‑point growth threshold.

The manufacturing PMI rose to 56.0 points, beating forecasts, while the services PMI came in at 57.9 points. Chris Williamson, chief economist at S&P Global Market Intelligence, said that, excluding an anomalous post‑Covid rebound, the economy is experiencing its strongest period since early 2015. Current output levels imply annualized GDP growth of about 5%. Corporations are hiring aggressively and reporting record revenue growth.

The downside of the boom is a rapid rise in consumer prices. Firms are passing cost increases on to customers at the most aggressive pace since 2022. Expensive oil — which surged after a February escalation of the Iran conflict — remains the principal inflation driver. Record fuel prices for gasoline and diesel have already dented household sentiment. The University of Michigan’s consumer sentiment index plunged well below the pre‑war levels, with Americans increasingly reporting that basic goods are becoming unaffordable.

The situation leaves the Federal Reserve with few options. Analysts expect the central bank to take a tactical pause after the September hike. However, they say the Fed will likely need to raise borrowing costs again in December to rein in rising prices.