WASHINGTON (Reuters) – U.S. business activity picked up in January, inflation appeared to be subsiding and a measure of the prices companies charge for their products fell to its lowest level in more than 3 1/2 years as the economy got underway. This suggests that the year 2024 will be favorable.
S&P Global said Wednesday that the preliminary U.S. Composite PMI Production Index, which tracks the manufacturing and services sectors, rose to 52.3 this month, the highest level since June of last year. The rise from December's 50.9 was driven by increases in both services and manufacturing activity.
A number above 50 indicates private sector expansion. The latest manufacturing PMI for this survey is:
It was 50.3, the highest level in 15 months since December's 47.9. The PMI for the flash services sector was 52.9, up from 51.4 last month and the highest since June last year.
The rise in the composite index confirms economists' predictions that economic growth will continue this year, albeit at a slower pace. The survey showing that inflation is receding supports expectations that the U.S. Federal Reserve will begin lowering interest rates in the first half of 2024.
However, companies also point out that delays in raw material procurement are increasing, which could put upward pressure on raw material prices.
The delay was attributed to “difficult truck transportation conditions due to storms and transport delays.” S&P Global announced that manufacturing lead times have extended for the first time in more than a year and the longest since October 2022.
Attacks on shipping companies by Iran-allied Houthi militants in the Red Sea and a drought in the Panama Canal also pose upside risks to inflation.
“Cost pressures will need to be closely monitored in the coming months, with the survey showing that supply lags are intensifying while the labor market remains tight, but for now the survey shows that It sends a clear and welcome message of resilient economic growth and sharply declining inflation,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
The government's first estimates of fourth-quarter gross domestic product (GDP), to be released on Thursday, are expected to show economic growth at an annual rate of 2.0%, according to a Reuters poll of economists. The economy expanded at a pace of 4.9% in the third quarter. The US central bank has raised its policy interest rate by 525 basis points since March 2022, to the current range of 5.25% to 5.50%.
The survey's preliminary new order index also rose to 52.2 in January, the highest level in seven months, from 51.2 in December. The prices companies pay for inputs rose at a moderate pace. Companies slowed the pace of price increases for their goods and services, and the output price index fell to 51.7 from 54.8 in December, the lowest since May 2020.
Private sector employment continued to grow, but at a slower pace. It reported that companies were increasing hiring to meet “increasing business requirements and the hiring of skilled workers to fill long-term vacancies,” but also noted that “hiring is often constrained by labor shortages.”
(Reporter Lucia Mutikani)
