US Business Activity Picks Up, But Gloom Persists Amidst Tariff Fears and Spending Cuts

The US economy showed signs of resilience in March, but persistent concerns about tariffs and government spending cuts continue to dampen sentiment and cloud the outlook for the rest of the year, according to a Reuters report citing a survey by S&P Global.

While business activity picked up, a key measure of input prices surged to its highest level in nearly two years, indicating inflationary pressures remain. Companies also displayed reluctance to hire, suggesting caution prevails.

"Business confidence in the outlook has also darkened... largely caused by growing worries over negative impacts from recent policy initiatives from the new administration," stated Chris Williamson, chief business economist at S&P Global Market Intelligence. The most frequently cited concerns were the potential consequences of federal spending cuts and tariffs.

The S&P Global Flash US Composite PMI Output Index, encompassing both the manufacturing and services sectors, rose to 53.5 in March, up from 51.6 in February. A reading above 50 signifies expansion in the private sector.

The improvement in activity is likely to provide little comfort, however, as fears of sluggish growth and persistent inflation linger. Consumer sentiment has also weakened as households grapple with uncertainty about the future.

President Biden's administration has implemented a series of tariffs on imported goods, with some duties delayed until next month. The administration has also embarked on an ambitious program to slash government spending, resulting in thousands of public workers being laid off, although some have been reinstated by court order.

"The improvement in activity will probably do little to assuage fears that the economy was staring at a period of very slow growth and high inflation," the report notes.

The survey's business confidence measure fell to its second-lowest level since 2022.

The S&P Global survey's measure of prices paid by businesses for inputs jumped to 60.9, its highest reading since April 2023, up from 58.4 in February. This surge was driven by the manufacturing gauge, which reached its highest level since August 2022, attributed to tariffs and rising staffing costs.

Manufacturers have passed on these higher costs to consumers. Services businesses also faced elevated input costs but faced challenges raising prices due to increased competition and slowing demand.

A measure of prices charged by businesses for their goods and services rose to 53.6 from 52.3 last month.

"Thankfully, from the Fed's perspective, services inflation remains relatively subdued, but this reflects the need to keep prices low amid weak demand, which will harm profits," Williamson observed.

The survey's measure of new orders received by businesses increased to 53.3 in March, up from 51.9 in February. Its measure of employment edged up to 50.6 from 49.4 in January.

The survey's flash manufacturing PMI dipped to 49.8 from 52.7 in February. Economists polled by Reuters had forecast the manufacturing PMI to fall to 51.7.

The flash services PMI rose to 54.3 from 51.0 last month. Economists had predicted the services PMI to drop to 50.8.