Key Points
- U.S. business activity slowed to a six-month low in December.
- At the same time, business costs jumped to their highest level in over three years.
- Tariffs are being widely blamed for the surge in costs and inflation. The slowdown is also affecting the job market, with hiring nearing a standstill.
- The combination of slowing growth and rising prices creates a difficult challenge for the Federal Reserve.
The U.S. economy showed signs of strain in December, as business activity expanded at its slowest rate in six months while the costs businesses face jumped to a three-year high. This troubling combination of slowing growth and rising inflation is creating a major headache for the Federal Reserve.
According to a new S&P Global report released Tuesday, the main concern is a sharp spike in business costs. This is forcing them to raise prices at one of the fastest rates in three years.
Economists are pointing to tariffs, which initially hit manufacturing but are now spilling over to service-based businesses as well.
This puts the Federal Reserve in a tough spot. Policymakers have cut interest rates three times to support a softening labor market, but the recent surge in inflation could make them hesitant to cut rates further.
The economic cooling is also hitting the job market. The report showed that hiring slowed, approaching a standstill, especially in the services sector. Businesses are becoming more cautious about hiring new employees due to rising costs and sluggish customer demand.
New orders for goods and services also grew at their slowest pace since early 2024, another sign that the economy is losing momentum.
