The U.S. economy entered the fourth quarter with solid momentum, as S&P Global’s flash composite Purchasing Managers’ Index rose to 57.6 in October. The reading was close to September’s high and marked the strongest level of business activity since March 2022. A reading above 50 signals continued expansion, and the latest data do not indicate that the economy is nearing recession.
Services Lead Orders and Output Growth
Output growth in both manufacturing and services reached its strongest level in nearly five years. Business surveys showed that domestic demand remained firm, while export demand also recovered. Growth in new export orders for services was the fastest since July 2023.
The increase in new services orders was particularly notable. Because services account for a much larger share of the U.S. economy than manufacturing, changes in service-sector orders and output have a greater effect on overall economic activity. Improving business conditions also supported a recovery in hiring, with employment growth reaching its fastest pace in more than four years.
Chris Williamson, chief business economist at S&P Global, said the output data were consistent with annualized U.S. gross domestic product growth of about 5%. Excluding the reopening phase after the pandemic, he said the past several months may represent one of the strongest periods for U.S. business growth since early 2015.
Energy and Freight Costs Push Prices Higher
The clearest pressure in the latest data came from prices. The increase in selling prices for goods and services accelerated to its fastest pace since July 2022, while input prices recorded their largest rise since November 2022. Higher energy, fuel and freight costs were the main sources of rising business expenses.
Those cost pressures are beginning to pass through to customer prices. If the trend continues, it could affect corporate margins, household purchasing power and expectations for monetary policy. At this stage, however, the survey also showed continued improvement in output, orders and employment, with higher prices not yet translating into a clear contraction in demand.
Real Consumer Spending Accelerates
Consumer data also point to continued expansion in economic activity. After adjusting for inflation, U.S. spending on goods and services rose 2.6% year over year in September, one of the stronger growth rates of the year and an improvement from the start of 2025.
Consumer spending is also making a larger contribution to economic growth. Its contribution to gross domestic product increased from 0.5 percentage point in the first quarter to 2.5 percentage points in the second quarter, and was estimated at 2.6 percentage points in the third quarter. Changes in spending typically affect hiring through their impact on business revenue and orders, making consumption an important gauge of economic momentum.
Weak Confidence Has Yet to Cut Spending
The improvement in real consumption contrasts with weak consumer confidence. The University of Michigan’s consumer sentiment index is near historic lows, with higher living costs, medical expenses, fuel prices and borrowing costs weighing on households’ assessments of the economy. U.S. mortgage rates have also climbed back to relatively high levels last seen in 2023.
So far, the decline in confidence has not been matched by a similar weakening in real spending. Consumption growth has continued to improve after accounting for inflation. For now, concerns about the broader economic environment have not fully translated into spending cuts, leaving demand that supports corporate revenue and profits in place.
Markets Weigh Growth Against Cost Pressures
Investors are watching two developments at the same time: whether PMI readings, consumption and employment can remain resilient, and whether rising energy and freight costs will push inflation higher. Stronger growth can support corporate revenue, but persistent price pressures could limit the scope for policy easing and increase market volatility.
Lawrence Fuller, head of Fuller Asset Management, said the U.S. expansion remains intact but that the stock market is rotating from sectors that previously led performance toward lagging areas. In that setting, he favors a relatively defensive asset allocation while maintaining that fundamental and technical conditions could support new record highs in 2027. That is an individual market view, not a recommendation on any specific security.
The clearest data point for now is that U.S. business activity, orders and employment all improved in October, while energy, fuel and freight costs pushed price growth to multi-year highs. The economy’s ability to maintain its current pace will depend on whether firm demand can continue to offset the pressure from rising costs.