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US business activity expands in March, but two key factors weigh on sentiment

by admin March 24, 2025
March 24, 2025
US business activity expands in March, but two key factors weigh on sentiment

Business activity in the United States expanded in March, signaling resilience in the private sector.

However, growing concerns over government spending cuts and import tariffs weighed on economic sentiment, raising questions about future growth prospects.

A survey released by S&P Global on Monday highlighted that while the services sector drove the expansion, the manufacturing industry slipped back into contraction. Additionally, rising input costs and restrained hiring reflected broader economic uncertainty.

Business activity rises, but sentiment weakens

The S&P Global Flash US Composite PMI Output Index, which tracks manufacturing and services, increased to 53.5 in March, up from 51.6 in February.

Any reading above 50 indicates expansion.

The services sector was the key driver of this growth, benefiting partly from improved weather conditions.

However, the manufacturing sector fell back into contraction, reversing two months of expansion.

Despite the uptick in business activity, concerns persist about slowing economic growth and rising inflation.

Analysts warn that while the PMI data suggests momentum, other indicators such as retail sales and employment figures hint at a more fragile economic foundation.

The Federal Reserve last week lowered its GDP growth projection for 2025 to 1.7%, down from 2.1% in December, reinforcing fears of an economic slowdown.

Rising costs and inflation pressures

One of the most pressing concerns in the survey was the sharp rise in input costs.

The index measuring prices paid by businesses surged to 60.9 in March, the highest level since April 2023.

Manufacturers, in particular, saw costs escalate to the highest level since August 2022, largely due to tariffs and higher staffing expenses.

As a result, businesses have started passing these costs onto consumers, with the index measuring prices charged for goods and services rising to 53.6 from 52.3 in February.

While service providers also faced increasing costs, their ability to raise prices was constrained by weaker consumer demand and intensified competition.

This points to potential profit margin pressures in the coming months.

Spending cuts and import tariffs add to economic uncertainty

Market sentiment has also been shaken by policy moves from the Trump administration.

Since returning to the White House, President Donald Trump has reintroduced tariffs on imported goods, with some set to take effect next month.

Additionally, his government has undertaken deep spending cuts, leading to thousands of job losses in the public sector—though some dismissals have been challenged in court.

These policy shifts have left businesses uncertain about the long-term macroeconomic environment, contributing to the second-lowest business confidence reading since 2022.

Employment and new orders show mixed trends

The hiring outlook remains subdued, with companies showing reluctance to expand their workforce. The survey’s employment index edged up to 50.6 from 49.4, barely signaling growth. This hesitation reflects concerns over future demand and rising labor costs.

Meanwhile, new orders continued to rise, with the survey’s measure increasing to 53.3 from 51.9 in February. However, the pace of growth suggests that businesses remain cautious about the economic trajectory.

While March’s PMI data suggests resilience in business activity, underlying challenges remain.

The Federal Reserve’s monetary policy stance, inflationary pressures, and government policies will play a crucial role in shaping economic growth for the remainder of the year.

The post US business activity expands in March, but two key factors weigh on sentiment appeared first on Invezz

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