Business Growth Cools, Prices Rise, And Markets Surge On Tariff Rollback Hopes

U.S. business activity kept expanding in April, but beneath the surface, growth is losing steam, inflation is reawakening, and the once-reliable services sector is showing signs of malaise following Donald Trump‘s tariff announcements earlier this month.

In flash data released Wednesday by S&P Global, a slowdown in service sector activity dragged the U.S. Composite Purchasing Managers' Index (PMI) to 51.2 in April, down from 53.5 in March. While still above the 50 mark that separates expansion from contraction, it's the weakest reading since December 2023.

The flash Services PMI dropped to 51.4 from 54.4, marking the second-slowest pace of growth in the past year, and missing estimates of 52.5.

The Manufacturing PMI slightly improved to 50.7, up from 50.2, outpacing expectations of a drop to 49.1.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the figures signal that U.S. output is expanding at a sluggish annualized pace of just 1.0%.

He added that the manufacturing sector is "broadly stagnating," with the dampening effects of economic uncertainty and weakening exports offsetting any tailwind from tariffs.

Tariffs Drive Prices Higher

Average prices charged for goods and services rose at the fastest pace in 13 months in April, driven by a 29-month high in manufacturing price inflation. Input costs in manufacturing surged at a rate unseen since August 2022, largely due to tariffs, rising import prices and a weaker U.S. dollar.

In services, prices also climbed at a quicker pace, the fastest in seven months, as firms passed on rising costs tied to labor and raw materials. Although the rate of increase in service input costs slowed from March, it remained the second-highest in six months.

"Tariffs are being cited as the key cause of higher prices," Williamson said, adding that these inflationary pressures "will inevitably feed through to higher consumer inflation."

“This is creating a headache for a central bank which is coming under increasing pressure to shore up a weakening economy just as inflation looks set to rise,” he added.

Market Cheers Possible Tariff Relief

Despite the downbeat economic data, Wall Street responded with optimism on Wednesday after reports emerged suggesting the Trump administration may ease tariffs on Chinese imports as well as confirmation by the president that he won’t fire Fed Chair Jerome Powell.

According to a Wall Street Journal report, officials are considering slashing existing duties by up to half, in some cases, and adopting a tiered approach to Chinese imports.

The proposed structure would assign a 35% levy on non-strategic items and at least 100% on products deemed crucial to U.S. national interests, phased in over a five-year period.

A senior White House official said the new policy could reduce the most aggressive tariffs to a range of 50%-65%, aiming to stabilize relations with Beijing and reduce pressure on global supply chains.

The S&P 500 index – tracked by the SPDR S&P 500 ETF Trust SPY – opened over 3% higher, with Nasdaq 100 tech stocks rallying 3.7% and the iShares Russell 2000 ETF IWM outperforming with a 4% gain.

Gold prices slid as demand for safe-haven assets weakened, with the SPDR Gold Trust GLD dropping 3.4%—on track for its worst day since June 2024.

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