Preliminary data released by IHS Markit on Monday revealed that U.S.
private sector business activity continued to expand in early January, albeit at a slower pace than in December 2021, as output growth of both
manufacturing and services sectors eased amid exacerbated supply delays and
labor shortages linked to the Omicron strain.
According to the report, Markit flash services purchasing manager's
index (PMI) dropped to 50.9 in early January from 57.6 in the previous month.
This was the lowest reading since July 2020. Economists had expected the
reading to decrease to 55.0. A reading above 50 signals an expansion in
activity, while a reading below this level signals a contraction. A significant
slowdown in business activity in the U.S. services sector reflected negative
impacts of labor shortages, employee absences, and the Omicron wave. However, new
business rose strongly, as demand conditions remained relatively firm.
Employment increased at a modest pace as service providers made efforts to
relieve pressure on capacity. On the price front, input cost inflation eased in
January, while the rate of charge inflation quickened to a series high.
At the same time, the Markit flash manufacturing purchasing manager's
index (PMI) came in at 55.0 early this month, dropping from 57.7 in December. This
was the lowest reading since October 2020. Economists had expected the reading
to decrease to 56.7. Output levels were almost unchanged from the December
ones, as new order growth weakened to the softest rate since July 2020, as customers
reportedly preferred to cut spending amid steep increases in costs. Meanwhile,
manufacturing employment saw its first decline since July 2020 amid labor
shortages, a high turnover of staff, and reports of the non-replacement of
voluntary leavers. On the price front, the rate of cost inflation eased to the
slowest since May 2021, while the pace of charge inflation weakened to the
slowest since April 2021.
Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 50.8
in January, down from 57.0 in December. This was the lowest reading since July
2020.