US Business Activity Slows Amidst Rising Prices, But Hiring Remains Strong
Washington (Reuters) - Economic activity in the United States decelerated to a nine-month low in January due to increasing inflationary pressures. However, businesses reported an uptick in hiring, corroborating the Federal Reserve's cautious approach to interest rate reductions in 2020.
According to S&P Global's Flash U.S. Composite PMI Output Index released Friday, January's private sector activity slowed to 52.4, the lowest level recorded since April 2018. The index measures growth in both the manufacturing and services sectors, with a reading above 50 indicating expansion.
The services sector accounted for the decline in the PMI, while manufacturing rebounded for the first time in seven months, boosted by expectations of "looser regulation, lower taxes, and heightened protectionism" under the Trump administration. However, concerns remain about potential tariffs disrupting supply chains and driving up inflation.
The U.S. central bank's potential shift towards a more restrictive stance to curb inflation has also raised concerns.
"Despite the modest deceleration in January, sustained confidence suggests this slowdown may be temporary," said Chris Williamson, chief business economist at S&P Global Market Intelligence. "The upturn in hiring, driven by an improved business outlook and the fastest job creation rate in two-and-a-half years, is particularly encouraging."
The survey's new orders component declined from 55.2 in December to 54.3 in January. Price increases accelerated, with a gauge of average input costs rising to 58.5 from 56.0, driven by supplier price markups and wage hikes due to labor shortages. Businesses passed on these increased costs to consumers, as a measure of output prices advanced to 53.8 from 52.1 in December. This increase was evident across both the manufacturing and services sectors, suggesting that inflationary pressures may persist.
Despite the slowdown, businesses reported a strong desire to hire more workers, but labor shortages posed challenges for some firms. The survey's employment index jumped to 53.7 in January from 51.4 in December, marking the highest level in 2.5 years. This marks the second consecutive monthly increase, following a four-month decline. The majority of the hiring occurred in the services sector.
While the Flash Manufacturing PMI improved to 50.1 from 49.4 in December, it remains below the 52.8 recorded for the Flash Services PMI in January. This was a significant departure from economists' estimates of 49.7 for Manufacturing and 56.5 for Services.