U.S. business growth in September slowed to its weakest pace in three months as tariffs pushed up costs and demand cooled

U.S. business activity grew in September but at the weakest pace in three months, with softer demand limiting how much firms could raise prices even as tariffs added to their costs.

S&P Global’s flash composite output index slipped by 1 point to 53.6, the group said Tuesday, still above the 50 line that signals expansion. While the measure of prices paid for materials climbed to a four-month high, the gauge of prices charged fell to the lowest since April. Input costs in services increased to the highest since May.

“Although tariffs were again cited as a driver of higher input costs across both manufacturing and services, the number of companies able to hike selling prices to pass these costs on to customers has fallen, hinting at squeezed margins but boding well for inflation to moderate,’’ Chris Williamson from S&P Global Market Intelligence said in a statement.

A pair of the firm’s composite indicators pointed to the slowest growth in new orders and in backlogs in three months. New business at service providers cooled, and bookings at factories barely rose. With demand easing, the composite employment index slipped to a five-month low.

For manufacturers, slower sales growth contributed to the largest build-up of finished-goods inventories in data back to 2007, the report said. Even so, company expectations for demand over the next year improved, helped in part by hopes that borrowing costs will move lower. Manufacturers also remained upbeat that higher tariffs could support production at home.

OECD warns Tariffs’ full impact on businesses still ahead

Separately on Tuesday, the OECD warned that the full effect of President Donald Trump’s tariff increases “has yet to be fully felt” across the U.S. economy. The organization projected global growth at 2.9% and U.S. growth at 1.5% in 2026, down sharply from 3.3% and 2.8% in 2024. The Paris-based body said tariffs, immigration changes, and inflation are the main forces weighing on prospects.

The fallout from trade measures is especially prominent, the OECD said. “The impacts of higher tariff rates are yet to be fully felt in the US economy,” the report said.

The organization noted that many tariff changes are phased in over time and that some firms have initially absorbed higher costs. Even so, signs of strain are emerging, citing the Federal Reserve’s decision last week to cut interest rates and Chair Jerome Powell’s observation that younger workers in particular are finding it harder to secure jobs. It also referenced a warning this week from former Trump economic adviser Gary Cohn.

Economic shock from trade barriers could arrive sooner

The economic shock from higher trade barriers could arrive as soon as this year, the OECD said. “Growth is expected to soften noticeably in the second half of this year, as front-loading activity unwinds and higher effective tariff rates on imports to the United States and China dampen investment and trade growth.”

For the current year, however, the OECD lifted its global growth forecast to 3.2%, from 2.9% in June, and raised its U.S. projection to 1.8% from 1.6%. Even with those upgrades, the group did not improve its outlook for next year and said the picture remains weak.

The upward revisions reflect companies’ efforts earlier this year to front-load trade ahead of tariff increases, the report said. Large investments in artificial-intelligence companies have also supported the near-term outlook. “Reductions in trade restrictions or faster development and adoption of artificial intelligence technologies could strengthen growth prospects,” the OECD wrote.

Taken together, the PMI snapshot shows firms wrestling with rising costs and softer demand while holding the line on prices. The OECD sees trade policy as a drag even as near-term growth gets a lift from front-loaded orders and AI.

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