U.S. private-sector activity expanded rapidly in October even as the pace eased from September, while businesses raised selling prices at the fastest rate since August 2022, according to a preliminary survey released Friday. The S&P survey put its composite output index at 57.6, down from 58.4 but still the second-strongest reading since March 2022; Reuters separately reported that the index remained well above the 50 threshold that separates expansion from contraction.

The combination creates a difficult signal for businesses, consumers and the Federal Reserve. Orders and production remain strong enough to support hiring and investment, yet firms also report worsening supply delays and greater ability to pass higher costs to customers. That suggests the economy entered the fourth quarter with momentum, but also with a renewed risk that inflation could remain elevated.

Demand remained broad as manufacturing strengthened

The survey’s manufacturing purchasing managers’ index rose to 56.0, its highest in 53 months, while the services index eased to 57.9 from 58.8. New orders across manufacturing and services reached their strongest level since March 2022, with companies citing domestic demand, inventory building and stronger exports. S&P’s panel covers more than 800 companies, giving the report value as an early indicator, though it measures executives’ reported conditions rather than final government output.

Employment also increased at one of the strongest rates of the past four years, according to MarketWatch. Manufacturing hiring was especially firm as companies added capacity and worked through rising backlogs. The labor signal is consistent with a business sector that is still responding to demand rather than preparing for an immediate downturn.

Pricing power is returning with supply strain

The more consequential change was in prices. S&P’s output-price index climbed to 59.8 from 58.4, while its input-cost index remained high at 64.9. Supplier delivery times deteriorated to their weakest level in more than four years. Together, those measures indicate that companies face both higher costs and less slack in supply networks, while strong orders make it easier for them to charge customers more.

That does not mean October consumer inflation will rise by the same amount. Purchasing managers’ indexes are diffusion measures: they show how widely conditions are improving or worsening, not the size of each price change. The flash reading is also based on responses collected before the month ends and can be revised in the final release. It is best read as an early warning about the direction and breadth of price pressure.

Official inflation data already show an energy shock

The latest government figures reinforce the warning. The Labor Department said the consumer-price index rose 0.6% in September, with energy prices up 5.2% during the month. Prices excluding food and energy increased 0.3% and were 2.6% higher than a year earlier. The next official report, covering October, is due Nov. 10, so Friday’s business survey arrives before policymakers can see whether firms’ reported increases are reaching consumers.

Financial markets also registered the pressure. Brent crude rose above $116 a barrel on Friday, and the 10-year Treasury yield approached 5% as U.S. stock indexes fell, according to Associated Press. Energy is only one source of inflation, but it can spread through freight, air travel, chemicals and other costs. S&P respondents also pointed to shortages and transportation constraints, meaning the price signal was broader than fuel alone.

Consumers see growth differently from businesses

Household sentiment remains far weaker than the corporate activity data imply. The University of Michigan’s final October index was 48.0, little changed from 48.1 in September and 10.4% below its level a year earlier. The university said concerns about purchasing power dominated responses, while year-ahead inflation expectations rose to 4.7% and long-run expectations increased to 3.5%. Its survey release also cautioned that the monthly movement in the headline index was too small to be statistically significant.

The contrast matters because consumer spending can remain resilient even when sentiment is poor, especially if employment and incomes hold up. But persistently high expected inflation can influence wage demands and purchasing decisions. The Journal likewise described the final reading as near record lows and noted that both short- and long-term inflation expectations edged higher.

The Federal Reserve faces a narrower path

The Federal Reserve raised its target rate by a quarter point to 3.75% to 4.00% in September, saying inflation remained somewhat elevated even as economic activity continued at a solid pace. That policy statement now looks closely aligned with the October survey: strong demand is sustaining output, while supply pressure and pricing power complicate the path back to the central bank’s 2% inflation goal.

Friday’s data do not determine the Fed’s next decision. Officials weigh official employment, consumer-price and spending data, and the PMI report is preliminary. Still, a broad acceleration in selling prices reduces the case for quick rate relief, while further tightening would raise financing costs for households and companies. The practical question is whether supply delays and energy costs ease before higher prices begin to weaken demand.

For businesses, October’s message is therefore mixed but clear. Sales and orders remain unusually strong, manufacturing is gaining ground and hiring has not collapsed. At the same time, the breadth of price increases and the decline in supplier performance show that growth is again testing capacity. The next PMI revision and Nov. 10 inflation report will show whether that pressure is temporary or becoming a more persistent feature of the fourth quarter.