The U.S. economy is showing renewed signs of life heading into late April, with business activity returning to growth after a sluggish start to the year. But the rebound is coming with a complication that could shape the months ahead: inflation is rising again—and it’s being driven by forces largely outside the domestic economy.

According to the latest S&P Global survey, overall business activity expanded in April, with the Composite Purchasing Managers’ Index (PMI) climbing to 52.0, up from 50.3 in March. Any reading above 50 signals growth, making this a clear shift back into expansion territory.

At first glance, this suggests the economy is regaining momentum. But a closer look reveals a more complicated picture.

A Rebound Led by Manufacturing—and Caution

The recovery is being driven primarily by the manufacturing sector, which surged to a 47-month high PMI of 54.0.

This strength, however, is not necessarily a sign of long-term confidence. Much of the increase is tied to companies accelerating production and stockpiling goods in anticipation of future disruptions. Businesses are effectively preparing for uncertainty, not celebrating stability.

The services sector, which makes up the majority of the U.S. economy, also returned to growth—but at a more modest pace. This imbalance highlights a key theme: parts of the economy are improving, but the recovery is uneven and cautious.

The Real Driver: Supply Chain Disruptions

Behind the rebound lies a powerful external force—the ongoing conflict involving Iran and its impact on global supply chains.

Shipping disruptions through critical routes, particularly the Strait of Hormuz, have slowed delivery times and created shortages of key inputs. Businesses across industries are reporting delays in receiving materials, forcing them to adjust operations and build inventories wherever possible.

These disruptions are not isolated. They are affecting everything from energy supplies to industrial materials, creating ripple effects throughout the economy.

Costs Are Rising at the Fastest Pace in Months

While activity is improving, costs are rising even faster.

Input prices for businesses have surged to an 11-month high, while output prices—the prices companies charge customers—are increasing at the fastest rate since mid-2022.

This is largely tied to the sharp increase in oil and commodity prices, which are being pushed higher by geopolitical tensions and supply constraints. As energy costs rise, they feed into nearly every part of the economy, from manufacturing to transportation to consumer goods.

The result is a renewed wave of inflation pressure just as policymakers were hoping for stability.

A Challenge for the Federal Reserve

This combination of rising activity and rising prices presents a difficult challenge for the Federal Reserve.

On one hand, stronger business activity suggests the economy can withstand current conditions. On the other hand, accelerating inflation limits the Fed’s ability to lower interest rates in the near term.

Economists now expect that inflation could remain elevated for longer than previously anticipated, reducing the likelihood of rate cuts in 2026.

This has direct implications for borrowing costs across the economy—especially in housing.

The Impact on Housing and Mortgage Rates

The connection to real estate is immediate.

Higher inflation typically leads to higher bond yields, which in turn push mortgage rates upward. Even if rates stabilize in the short term, renewed inflation pressure makes sustained declines less likely.

At the same time, rising input costs are increasing the price of building homes. Materials, transportation, and labor all become more expensive when energy prices rise, adding pressure to an already strained housing supply.

This creates a difficult environment:

• Buyers face higher borrowing costs
• Builders face higher construction costs
• Affordability remains under pressure from both sides

A Fragile Recovery

Despite the headline improvement in business activity, the broader picture remains fragile.

Employment growth is modest, with manufacturing jobs declining slightly and services hiring only marginally. Many businesses are holding back on expansion plans due to uncertainty, focusing instead on managing costs and navigating supply challenges.

This suggests that while the economy is growing, it is doing so cautiously—and without strong momentum.