March PMI shows growth — but confidence weakens
U.S. business activity picked up in March, but S&P Global’s latest survey reveals a more troubling undercurrent: rising input costs, tariff anxiety, and shrinking confidence across both services and manufacturing sectors.
The Composite PMI Output Index climbed to 53.5 from 51.6 in February, signaling expansion. Services drove the gains, aided by warmer weather, while manufacturing fell back into contraction territory at 49.8 — down from 52.7.
However, optimism is eroding. Business confidence dropped to its second-lowest level since 2022, weighed down by the Trump administration’s tariff plans and sweeping federal budget cuts, including mass public sector layoffs.
Cost pressures intensify
Input prices surged at the fastest pace in nearly two years, fueled by higher tariffs, labor costs, and supply constraints. S&P’s price gauge jumped to 60.9, the highest since April 2023.
- Manufacturers passed along some costs to consumers, lifting selling prices.
- Service providers faced rising expenses but limited pricing power due to weak demand and heightened competition.
The index tracking prices charged by businesses rose to 53.6 from 52.3, indicating elevated inflation risks — especially troubling given recent Fed warnings.
Fed warns of slower growth, persistent inflation
The Federal Reserve last week lowered its 2025 GDP forecast to 1.7% and raised its inflation estimate to 2.8% for core PCE — well above its 2% target. While rates remain unchanged at 4.25%–4.50%, policymakers cited rising uncertainty from both domestic policies and global trade disruptions.
Gross domestic product growth for Q1 is tracking below 1.5%, with consumer sentiment deteriorating in tandem.
Job growth sluggish, new orders rise
Despite the overall PMI increase, labor market data remains mixed:
- Employment edged up to 50.6 — barely expansionary.
- New orders rose to 53.3, showing some demand resilience, especially in services.
Yet with businesses wary of long-term risks, hiring and investment remain cautious.
Uncertainty clouds outlook
“Worries over tariffs and spending cuts are taking a toll on business sentiment,” said Chris Williamson, chief economist at S&P Global. “Activity is up, but expectations are dimming.”
