US business activity cools more than expected in September

US business activity growth slowed for a second successive month in September, accompanied by a softening of demand growth, a closely watched survey on Tuesday showed.

The headline S&P Global US purchasing managers' index composite output index fell to 53.6 in September, from 54.6 in August, according to the 'flash' reading which is based on about 85% of usual survey responses.

A drop to 53.9 had been forecast by FXStreet consensus. The figure remains well above the 50.0 no change mark.

The flash US Services PMI business activity index fell to 53.9 in September from 54.5 in August, a three-month low while the S&P Global US manufacturing PMI fell to September 52.0 from 53.0 in August.

While growth was again seen across both manufacturing and service sectors, both categories reported weakened expansions, leading to slower hiring in both cases, the report from S&P Global showed.

Tariffs were again widely cited as the main cause of sharply higher costs, but weaker demand and stiff competition reportedly limited the scope to raise selling prices, which rose on average at the slowest rate since April.

Slower than expected sales reportedly also contributed to the largest rise in factory inventory levels of unsold stock in the history of the survey.

More encouragingly, business confidence in the outlook improved, partly reflecting hopes that lower interest rates will help offset some of the anticipated impacts from tariffs and broader policy uncertainty.

Chris Williamson, chief business economist at S&P Global Market Intelligence said the growth in September rounds off the best quarter so far this year for US businesses, with PMI data consistent with the economy expanding at a 2.2% annualised rate in the third quarter.

However, he noted the monthly profile is one of growth having slowed from its recent peak back in July, and September saw companies also pull back on their hiring.

Williamson pointed out while 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."

Nonetheless, data is still indicative of consumer inflation remaining above the central bank’s 2% target in the coming months, he added.

Final September data are published on October 1 for manufacturing and October 3 for services and composite indicators.

The S&P Global Flash US composite PMI is compiled by S&P Global from responses to questionnaires sent to survey panels of around 650 manufacturers and 500 service providers. The responses were collected between September 11 and 22.