Surging economy gets off to a good start in the fourth quarter - but there's one big problem

By Jeffry Bartash

'Inflation is likely to rise further ... in the coming months'

The U.S. economy hasn't slowed down.

A surprisingly strong U.S. economy sustained its vigor on the verge of the holiday shopping season, a pair of S&P surveys showed, as businesses hired more workers to keep up with rising customer demand.

The one big negative? High inflation and climbing prices, which companies are trying to pass on to customers.

"The U.S. economy continues to boom at the start of the fourth quarter," said Chris Williamson, chief business economist at S&P Global Market Intelligence. "However, cost pressures remain a key concern."

Companies benefited from increased demand among U.S. households and businesses as well as a pickup in export orders. Steady consumer spending and massive investment in artificial intelligence were among the key drivers.

A survey of top business executives pointed to "the best growth spell for U.S. businesses since early 2015" excluding the COVID-19 pandemic, Williamson said.

While all the demand is typically a good sign, it's pressuring the cost of business supplies. Critical shortages of some raw materials due to the ongoing conflict with Iran and high oil prices are major sources of inflation.

Businesses are trying to pass on the higher costs of supplies to customers, and they have more leverage due to the increase in demand.

If that keeps up, Williamson said, "consumer-price inflation is likely to rise further above the Fed's target in the coming months."

The Fed raised a key U.S. interest rate in September to contain inflation. The central bank is expected to increase borrowing costs in the months ahead.

Inflation has risen over 3.5% in the past year, well above the Fed's 2% target.

While higher rates might tamp down inflation, they could also slow the economy.

For now, businesses aren't anticipating a slowdown in demand. Employment increased in October at the second-fastest pace in four years, S&P said.

-Jeffry Bartash

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-23-26 1024ET