In September 2025, U.S. business activity showed signs of slowing, as evidenced by the decline in the S&P Global Composite PMI Output Index, which dropped from 54.6 in August to 53.6. While this still indicates overall expansion, the reduced pace reflects the growing challenges faced by businesses across both the manufacturing and services sectors. The moderation in activity was largely attributed to increased input costs, primarily driven by tariffs, which are placing additional pressure on businesses already grappling with weak demand.
Both the manufacturing and services sectors saw diminished growth in September. Companies in these sectors reported higher costs for raw materials, labor, and other key inputs. Tariffs imposed on imported goods have been a significant factor contributing to these rising costs, which have, in turn, affected businesses’ ability to maintain their previous growth rates. Despite these higher input costs, businesses were not able to pass them on fully to consumers, as demand remained sluggish. As a result, prices charged to consumers dropped, reflecting the softening demand in the economy.
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In response to the slowing business activity and persistent challenges posed by rising costs, the Federal Reserve took action by cutting interest rates by 25 basis points. The rate cut, which brought the federal funds target range to 4.00%-4.25%, was aimed at supporting economic growth and addressing the rising pressures that businesses are facing. The rate reduction is expected to make borrowing cheaper, providing businesses with more favorable conditions to invest and manage costs during a period of reduced growth.
While the decision to lower interest rates is designed to cushion the economy against a potential slowdown, it also underscores the delicate balance the Federal Reserve faces. The central bank is tasked with supporting growth without exacerbating inflationary pressures or creating imbalances in the economy. The rate cut indicates a shift in the Fed’s policy stance, as it responds to weakening growth and moderating inflation.
Overall, September’s data paints a picture of an economy that is still growing but at a slower pace, as businesses contend with the rising costs associated with tariffs and other factors. The Federal Reserve’s move to lower interest rates is one of several measures that may be taken to sustain growth and mitigate the impact of ongoing challenges. However, with demand remaining weak and costs continuing to rise, it remains to be seen how long the U.S. economy can maintain its expansion trajectory.
