The latest snapshot of the U.S. economy suggests a period of mounting strain for companies across industries. On September 23, S&P Global’s flash Purchasing Managers’ Index (PMI) revealed that business activity decelerated for a second consecutive month, with the composite index slipping to 53.6 from 54.6 in August. While the reading still indicates expansion, the slowdown reflects an environment where rising input costs, weakening demand, and limited pricing power are beginning to squeeze firms more tightly.
A central challenge for many businesses is the persistence of higher costs. Tariffs on imported components and raw materials continue to drive up expenses, adding to already elevated energy and logistics costs. At the same time, labor markets remain tight, forcing employers to contend with upward wage pressure even as revenue growth softens. Despite these rising expenses, companies are finding it increasingly difficult to pass costs along to customers. Competitive pressures and cautious consumer spending have weakened pricing power, forcing firms to absorb a larger share of their costs and putting profit margins under pressure.
Executives across industries are rethinking strategy as a result. Many are revisiting supply chain structures, looking to diversify sources of inputs, negotiate more flexible contracts, and rebalance inventories to avoid overhang. While these adjustments can buffer volatility, they require upfront investment and careful management. For others, the focus is shifting toward operational efficiency: cutting waste, improving productivity, and tightening control of expenses. In thin-margin industries such as retail, restaurants, and logistics, there is a growing recognition that profitability will hinge on cost discipline as much as on revenue growth.
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Some firms are also leaning into differentiation as a way to protect margins. Rather than competing purely on price or volume, businesses are experimenting with niche positioning and unique offerings to capture customer loyalty. This strategy can help firms sidestep head-to-head competition in oversaturated markets, but it requires strong branding, innovation, and a clear understanding of shifting consumer priorities. At the same time, many companies are accelerating their digital transformation plans. Automation, artificial intelligence, and real-time data analytics are being deployed more aggressively to enhance agility and lower operating costs, particularly in manufacturing and logistics sectors where even small efficiency gains can yield significant savings.
Economic forecasts suggest that the current pressures will not fade quickly. According to EY’s U.S. economic outlook, tariffs, policy uncertainty, and persistent labor shortages are likely to weigh on both business investment and consumer spending through 2026. Analysts project that GDP growth will slow to just 1.5 percent in 2025 and 1.4 percent in 2026, down from 2.8 percent in 2024. This cooling trajectory underscores the challenge of balancing cost pressures with muted demand. For executives, the inability to rely on robust growth makes adaptability and resilience more important than ever.
The broader macroeconomic backdrop is also in flux. While inflation has cooled from its earlier peaks, it remains sticky in certain categories, and global supply chains are still vulnerable to disruptions. Trade policies remain unsettled, with tariffs playing a larger role in shaping cost structures than many businesses anticipated. Meanwhile, Federal Reserve policy is expected to ease in the coming quarters as growth slows, but interest rates are unlikely to fall fast enough to offset the near-term pressures firms are facing.
For now, companies that act decisively to adapt—by reshaping supply chains, embracing automation, and focusing on customer experience—are better positioned to weather the turbulence. Those that fail to adjust may find themselves caught in the middle: unable to compete on cost and unable to differentiate enough to justify premium pricing. The fall of 2025 thus represents a turning point for many U.S. businesses, as leaders face a tough balancing act between surviving immediate headwinds and investing for long-term competitiveness.
The message from September’s PMI is clear: expansion is still underway, but it is increasingly fragile. Rising costs and soft demand are reshaping strategies in boardrooms across the country. Whether companies can navigate these pressures with resilience and innovation will determine not just their profitability in the months ahead, but their place in a slower-growing, more uncertain U.S. economy.
