US business activity rebounds in January; Inflation Cooling – S&P Global Survey

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WASHINGTON (Reuters) – U.S. business activity rebounded in January and inflation appeared to ease as a measure of the prices companies charge for their products fell to the lowest level in more than three-and-a-half years, suggesting the economy is starting to take off. 2024 on a strong note.

Standard & Poor’s Global said on Wednesday that its preliminary US Composite PMI output index, which tracks the manufacturing and services sectors, rose to 52.3 this month, the highest level since last June. The rise from 50.9 in December was driven by gains in both services and manufacturing activity.

A reading above 50 indicates expansion in the private sector. The survey’s manufacturing PMI rebounded quickly to

15-month high of 50.3 from 47.9 in December. The PMI for the express services sector rose to 52.9, the highest reading since last June, from 51.4 the previous month.

The higher composite reading reinforces economists’ expectations that the economy will continue to grow this year, albeit at a moderate pace. The decline in inflation in the poll also supports expectations that the Federal Reserve will begin cutting interest rates sometime in the first half of 2024.

But companies have also noticed increasing delays in sourcing materials, which could put upward pressure on raw material prices.

The delay was attributed to “difficult trucking conditions due to storms and transportation delays.” S&P Global said manufacturing lead times lengthened for the first time in more than a year and by the most since October 2022.

Attacks by the Iran-aligned Houthis on shipping lines in the Red Sea and drought in the Panama Canal also pose an upside risk to inflation.

“With the survey signaling supply delays intensifying while labor markets remain tight, cost pressures will have to be closely watched in the coming months, but for now the survey sends a clear and welcome message of resilient economic growth and sharp decline in inflation.” Chris Williamson, chief business economist at S&P Global Market Intelligence, said:

The government’s first estimate of fourth-quarter gross domestic product on Thursday is likely to show the economy growing at a 2.0% annual rate, according to a Reuters survey of economists. The economy expanded at a pace of 4.9% in the third quarter. The US central bank has raised interest rates by 525 basis points to the current range of 5.25%-5.50% since March 2022.

The survey’s composite new orders index also rose to a seven-month high of 52.2 in January from 51.2 in December. The prices paid by companies for inputs rose at a moderate pace. Companies raised prices for their products and services at a slower rate, with the output price gauge falling to 51.7, the lowest reading since May 2020, from 54.8 in December.

Employment in the private sector continued to grow, but at a slower rate. Companies reported increased hiring to meet “increasing labor demands and hiring skilled workers for long-vacant positions,” but also noted that “hiring was often constrained by labor shortages.”

(Reporting by Lucia Mutikani)

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