Tariffs, Government Spending Cuts Restrain U.S. Business Activity

U.S. business activity nearly stalled in February, as concerns over import tariffs and deep federal spending cuts erased the economic gains following President Donald Trump's election victory, Lucia Mutikani reported for Reuters.

S&P Global’s Flash U.S. Composite PMI Output Index fell to 50.4 this month.

The drop in activity to a 17-month low, as reported by S&P Global on Friday, adds to a string of surveys suggesting that businesses and consumers are growing increasingly uneasy about the Trump administration’s policies.

Following Trump's Nov. 5 victory, business and consumer sentiment soared in anticipation of deregulation, tax cuts, and low inflation.

"Companies report widespread concerns about the impact of federal government policies, ranging from spending cuts to tariffs and geopolitical developments," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

"Sales are reportedly being hit by the uncertainty caused by the changing political landscape, and prices are rising amid tariff-related price hikes from suppliers."

S&P Global’s Flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 50.4 this month, the lowest reading since September 2023, down from 52.7 in January. A reading above 50 indicates growth in the private sector.

The services sector accounted for the decline, contracting for the first time since January 2023.

Meanwhile, manufacturing activity climbed to an eight-month high, though analysts attribute this to businesses rushing to buy materials ahead of potential cost increases or supply shortages tied to tariffs.

Additional reports this week indicate homebuilder sentiment weakened in February, while a preliminary survey from the University of Michigan found consumer confidence slipping, with one-year inflation expectations surging to levels last seen in November 2023.