U.S. private-sector activity accelerated sharply in September, adding evidence that economic momentum remains unusually strong even as borrowing costs rise and the Federal Reserve maintains a restrictive policy stance.
The flash U.S. Composite Purchasing Managers’ Index from S&P Global climbed to 58.4 in September from 56.0 in August, its strongest reading since July 2021. Readings above 50 indicate expansion, while the September result showed a substantial acceleration in activity.
The expansion was broad, with both manufacturing and services strengthening. New orders increased sharply, while growing backlogs and supply-chain pressures suggested businesses were struggling to keep pace with demand.
That strength also came with an inflation warning. Businesses reported increasing cost pressures as strong demand strained capacity and supply chains. Those developments matter because the Federal Reserve is already confronting inflation above its target following its September rate increase.
Bond markets reacted accordingly. The benchmark 10-year Treasury yield climbed to its highest level since 2007 as investors reassessed the possibility that monetary policy may need to remain restrictive or tighten further. U.S. equities declined alongside the move in yields.
The economic signal is therefore complicated for markets. Strong activity reduces immediate recession concerns and supports corporate demand, but persistent inflation pressures could give policymakers additional reason to maintain restrictive interest rates.
September’s figures are preliminary and can be revised when final PMI data are published. They nevertheless provide an important early indication that U.S. economic momentum strengthened materially late in the third quarter.
For investors, the next question is whether upcoming inflation and labor-market data confirm the same combination of strong demand and persistent price pressure. If they do, expectations for additional Federal Reserve tightening could remain an important constraint on equity valuations and other rate-sensitive assets.
