US Business Activity Surges to Five-Year High Amid Supply Chain Bottlenecks

US business activity surged to its highest level in over five years in September, driven by strong new orders. The S&P Global flash US Composite PMI Output Index rose to 58.4, surpassing the July 2021 high and following a reading of 56.0 in August. This growth is being accompanied by severe supply chain bottlenecks.

The Atlanta Federal Reserve's GDP tracking estimate is running at a 5.1% rate, while the economy grew at a 1.5% pace in the April-June quarter. The sharp rise in work backlogs and supply chain delays has led to higher prices, with the PMI indicating that companies are developing more pricing power.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said 'business is clearly booming now in both manufacturing and services,' but also noted 'this growth is being accompanied by some of the most severe supply chain bottlenecks seen in the near-two-decade survey history if the pandemic is excluded.'

The supply constraints mostly stem from the US-Israeli war with Iran, which is in its seventh month. Chicago Fed President Austan Goolsbee said that supply shocks are proving more persistent and adding to inflation.