US Markit Jan P Composite: 50.8 (prev 57.0)
"Soaring virus cases have brought the US economy to a near standstill at the start of the year."
US Markit Manufacturing Jan P: 55.0 (est 56.7; prev 57.7)
- Services: 50.9 (est 55.4; prev 57.6)
- Composite: 50.8 (prev 57.0)
After pulling back slightly in December (less than a point), January Markit flash Composite PMI fell by over -6 points to just above the breakeven 50 level between expansion and contraction. This was the lowest reading since July 2020. The first paragraph was a doozy - “US private sector firms signalled a marked slowdown in growth at the start of 2022 amid softer demand conditions, worsening supply chain disruptions and labor shortages linked to the Omicron wave.”
Services led the decline falling from 57.6 in December to 50.9 in January. Manufacturing also slowed but held up a little better at 55.0 (from 57.7 in December). But getting into the specifics, it appears it was mostly a supply story once again. New orders remained in expansion territory for an 18th straight month “rising strongly” although at the lowest increase since December 2020, led again by the service sector. Input prices did soften, rising at the lowest since March, but were still elevated historically. Selling prices though picked up to the third highest increase on record. Employment stayed positive, but “modest,” while backlogs increased at the lowest level since March as well. Also, as we saw in the global reports this morning, there was hope for supply chains with pressures there easing. Future expectations pulled back but remained at the second highest level since June.
From the report:
US private sector firms signalled a marked slowdown in growth at the start of 2022 amid softer demand conditions, worsening supply chain disruptions and labor shortages linked to the Omicron wave.
Adjusted for seasonal factors, the IHS Markit Flash US Composite PMI Output Index posted 50.8 in January, down notably from 57.0 in December. The resulting upturn in activity was only marginal, and the slowest since July 2020. The slowdown in output growth was broad-based, with both manufacturing and service sector firms reporting near-stalled output as the steep spike in virus cases associated with the Omicron wave meant ongoing supply issues and labor shortages were exacerbated by renewed pandemic related containment measures.
Although output was constricted by the Omicron wave, demand growth remained more resilient. New orders for goods and services continued to rise strongly, albeit registering the weakest rise since December 2020. The upturn in new orders was supported by the service sector, as manufacturers stated that new sales growth was often held back by weaker demand from clients amid price rises and efforts to work through inventories. Renewed restrictions in key export markets and raw material shortages also led to a softer upturn in new export orders.
Meanwhile, input price inflation softened again in January. The rate of increase in costs was the slowest since last March, albeit sharper than any prior period in the series history. Firms noted that prices were driven up by greater supplier costs and upward pressure on wages. The pace of selling price inflation for goods and services picked up, and was the third-fastest on record (since October 2009) as companies sought to pass higher costs on to clients.
Despite challenging labor market conditions, firms were able to expand their workforce numbers in January. The rise in employment was only modest, however, with backlogs of work increasing solidly again. That said, the upturn in outstanding business was the slowest since March 2021 as some firms noted efforts to clear work-in-hand
Although the degree of business confidence in the year ahead was the second-highest since last June, optimism waned. Concerns regarding further price rises and client responses to inflationary pressures weighed on expectations.
Here was the commentary:
Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said: “Soaring virus cases have brought the US economy to a near standstill at the start of the year, with businesses disrupted by worsening supply chain delays and staff shortages, with new restrictions to control the spread of Omicron adding to firms’ headwinds.
“However, output has been affected by Omicron much more than demand, with robust growth of new business inflows hinting that growth will pick up again once restrictions are relaxed. Furthermore, although supply chain delays continued to prove a persistent drag on the pace of economic growth, linked to port congestion and shipping shortages, the overall rate of supply chain deterioration has eased compared to that seen throughout much of the second half of last year. This has in turn helped lift manufacturing optimism about the year ahead to the highest for over a year, and has also helped bring the rate of raw material price inflation down sharply. Thus, despite the survey signalling a disappointing start to the year, there are some encouraging signals for the near-term outlook ”
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