U.S. business activity accelerates in March, but outlook remains downbeat

Investing.com - U.S. business activity growth accelerated in March, but expectations for the year ahead fell to their second-lowest level since October 2022 in a sign of increasing worry among companies about the broader economic outlook.

Improved weather powered an uptick in the key U.S. services sector, which helped to mitigate a renewed decline in manufacturing output. Factories reported fewer instances of activity having been buoyed by the front-running of anticipated tariffs, S&P Global data showed on Monday.

Firms had been pushing earlier in the year to lock in orders prior to the implementation of potential sweeping tariffs on friends and adversaries alike by U.S. President Donald Trump. Businesses and economists have both flagged worries that the levies could refuel inflation pressures and potentially dent wider growth.

Still, the flash estimate for S&P Global’s U.S. composite purchasing managers’ index, a tracker of the manufacturing and services sectors, rose to a three-month high of 53.5 in March. The figure stood at 51.6 in February. A level above 50 indicates expansion.

The number showed that the economy had regained some momentum following a patchy first quarter of 2025 that was also impacted by inclement weather.

Yet business confidence was dour, slumping to its lowest point bar pre-election jitters last September.

Sentiment has "[soured] further from the buoyant mood seen at the start of the year to one of the gloomiest readings seen over the past three years, largely caused by growing worries over negative impacts from recent policy initiatives from the new administration," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

"A key concern over tariffs is the impact on inflation, with the March survey indicating a further sharp rise in costs as suppliers pass tariff-related price hikes on to U.S. companies."

S&P Global’s measure of prices paid by companies for inputs rose to 60.9, the highest mark since April 2023 and up from 58.4 in February. Manufacturing businesses are increasingly passing these higher expenses onto customers, although services inflation remains relatively subdued, Williamson noted.

"[B]ut this reflects the need to keep prices low amid weak demand, which will harm profits," Williamson said.

The data comes after the Federal Reserve left interest rates unchanged at its latest policy meeting, but raised its expectations for inflation and lowered its growth forecasts.