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U.S. business output ticked higher in October as the manufacturing sector pulled out of a five-month contraction on a pickup in new orders, and services activity accelerated modestly amid signs of easing inflationary pressures.

S&P Global on Tuesday said its flash U.S. Composite Purchasing Managers Index tracking both the manufacturing and service sectors rose to 51.0 in October – one point above the 50 level that separates expansion and contraction – from a final September reading of 50.2. It was the highest level since July.

It was the latest sign the U.S. economy is withstanding the surge in interest rates spurred by the Federal Reserve’s campaign to beat back inflation. Growth has persisted all year even as most economists until recently had expected the Fed’s 5.25 percentage points of rate hikes since March 2022 to trigger a recession and a rise in joblessness.

Later this week the Commerce Department will offer up its scorecard of economic activity for the third quarter, with economists polled by Reuters estimating gross domestic product growth was the swiftest in nearly two years in the period from July through September. The S&P Global survey suggests that momentum has carried over into the start of the fourth quarter.

“Hopes of a soft landing for the U.S. economy will be encouraged by the improved situation seen in October,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said in a statement. “The S&P Global PMI survey has been among the most downbeat economic indicators in recent months, so the upturn in U.S. output growth signalled at the start of the fourth quarter is good news.”

The survey’s manufacturing PMI inched up to the break-even level of 50, its highest since April and snapping a shallow contraction in the sector that had begun in May. The median expectation among economists polled by Reuters had been for a reading of 49.5.

New manufacturing orders rose for the first time in six months and were the highest since September 2022.

On the much-larger services side of the economy, activity also defied forecasts for a modest slowdown as that sector’s PMI came in at a three-month high of 50.9 this month versus 50.1 in September and against a median Reuters poll estimate of 49.8.

In a development that will be welcomed by Fed policy-makers in their fight against inflation, service-sector cost inputs grew at their slowest pace in three years while service providers increased prices by the smallest margin since the spring of 2020 shortly after the coronavirus pandemic erupted.

“The survey’s selling price gauge is now close to its pre-pandemic long-run average and consistent with headline inflation dropping close to the Fed’s 2 per cent target in the coming months, something which looks likely to be achieved without output falling into contraction,” Williamson said.

Inflation has abated notably since hitting its peak rate in June 2022, but the path downward has been uneven over the past several months, and Fed officials have fretted that services price pressures were proving especially sticky.

Other recent data have shown progress on that front, with a “super core” measure of inflation – services costs excluding energy and housing – having risen in August by the least in 13 months. The Commerce Department will report the figure for September on Friday.

As constructive as the recent data may be for the economic outlook, Williamson said the recent flare up in violence in the Middle East presents a downside risk to growth and upside risks to inflation.

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