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Flash composite PMI™ rises to 53.1 in January, highest since
March 2019
Growth fuelled by services while manufacturing continues to
struggle amid falling exports
Tariffs push prices higher but forward-looking indicators
improve
US business activity grew at its fastest rate for ten months in
January, according to IHS Markit's flash PMI data, with the rate of
growth accelerating for a third straight month. Jobs growth
meanwhile struck a six-month high as firms' optimism about the
future continued to improve, reaching the highest since last June.
The upturn was again driven by the service sector, with
manufacturing lagging behind as disappointing export business
continued to act as a drag. Costs meanwhile rose at the fastest
rate for seven months, lifted higher in many cases by tariffs and
upward wage costs.
Growth at ten-month high at start of 2020
Adjusted for seasonal factors, the IHS Markit Flash US Composite
PMI Output Index posted 53.1 in January, up from 52.7 in December,
to indicate the quickest rise in output since last March.
Historical comparisons suggest the current PMI reading is broadly
consistent with the economy growing at a steady but unspectacular
annualised rate of around 2%.
Service providers reported stronger growth than manufacturers,
suggesting that the former continued to act as the main driver of
GDP growth. The more domestically-focused services economy has been
buoyed in particular by strong consumer spending amid low interest
rates and a buoyant labour market. Note that the flash PMI survey's
employment index rose to a six-month high in January, indicating
further solid non-farm payroll growth of approximately 150,000
during the month.
The manufacturing survey's output index remained at a level
indicative of actual factory production more or less stagnating.
New export orders for goods fell back into decline, dragging
overall order book growth to its lowest for four months, and below
the average seen during 2019.
Tariffs push prices higher
The survey also saw the rate of input cost inflation picking up
to a seven-month high. Higher operating expenses were commonly
linked to stronger increases in raw material prices and wages, the
former often attributed to tariffs.
Average selling prices rose at a more modest pace, however,
dropping below the average recorded last year, as many firms chose
to squeeze their margins rather than pass price hikes on in
full.
Brighter outlook
Output expectations across the private sector meanwhile improved
at the start of 2020, with overall optimism reaching a seven-month
high in January to suggest that firms on balance expect the upturn
to gain momentum in coming months.
The rise in the current output gauge and business sentiment
index support our view that the Fed will hold policy unchanged in
upcoming meetings as it continues to assess the economy's
performance and risks. IHS Markit anticipates GDP growth of 2.1% in
2020, which is close to the economy's potential growth rate.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
Purchasing Managers' Index™ (PMI™) data are compiled by IHS
Markit for more than 40 economies worldwide. The monthly data are
derived from surveys of senior executives at private sector
companies, and are available only via subscription. The PMI dataset
features a headline number, which indicates the overall health of
an economy, and sub-indices, which provide insights into other key
economic drivers such as GDP, inflation, exports, capacity
utilization, employment and inventories. The PMI data are used by
financial and corporate professionals to better understand where
economies and markets are headed, and to uncover opportunities.
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
