Bloomberg) — US business activity picked up in October after back-to-back months of stagnation, helped by a rebound in factory demand and an easing in service-sector inflation.

The S&P Global flash composite output index advanced to a three-month-high of 51, one point above the demarcation line between expansion and contraction. Factories registered new order growth for the first time since April, and business activity at service providers also improved.

Meanwhile, the composite gauge of selling prices fell to a three-year low, driven by a pullback in inflationary pressures at service providers. At those businesses, measures of both costs and prices charged dropped to levels not seen since 2020, in part due to efforts to drive sales and entice customers.

“Hopes of a soft landing for the US economy will be encouraged by the improved situation seen in October,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.

“The survey’s selling price gauge is now close to its pre-pandemic long-run average and consistent with headline inflation dropping close to the Fed’s 2% target in the coming months,” Williamson said.

The policy sensitive two-year Treasury note yield rose after the PMI data. Swap rates for the Federal Reserve’s upcoming meetings for December and January edged higher to show odds just above 50% for a quarter-point hike by early next year.

While business activity in the US is proving resilient, the group’s figures from Europe show an economy slipping toward a recession. The purchasing managers composite measure of activity in the euro area dropped to a three-year low of 46.5, bucking expectations for a slight improvement. In the UK, the PMI also showed contraction.

Read More: Euro Zone Edges Closer to Recession on Slowing Business Activity

US factories did see increased cost pressures, fueled by higher prices for oil and related products, the report showed.

Service providers continued to hire, albeit at a slower pace, while headcount at manufacturers slipped. Many firms reported not replacing voluntary job leavers due to uncertainty about the outlook or cost-saving efforts. October marked the first time the gauge of factory employment had fallen below 50 since mid-2020.

That said, the manufacturing picture does appear to be improving. After contracting for five months, the group’s factory gauge edged up to 50, suggesting a stabilization in the beleaguered sector.

Businesses appeared more optimistic about the future as well. Confidence about the future across US industries matched the highest level since May 2022, driven by service providers. Sentiment was supported by hopes of stronger demand and a better ability to hire workers and expand capacity.

–With assistance from Michael Mackenzie.

(Adds Treasury yields)