Business Activity Contracted in January, Though at a Slower Pace

A survey of purchasing managers indicated that business activity continued to contract this month as customer demand remained subdued and high inflation impacted client spending.

The S&P Global Flash U.S. Composite Purchasing Managers’ Index (PMI) was 46.6 in January, up from December’s 45.0 and the highest in three months. The reading remained below 50, which indicates a contraction in output. The PMI readings for services activity, manufacturing, and manufacturing output also advanced, but stayed under 50 as well.

The U.S. economy was starting the new year “on a disappointingly soft note,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. He noted that while the drop in business activity moderated slightly from December, the rate of decline was among the steepest since the global financial crisis.

Low Confidence

Williamson explained that the participants’ overall confidence continued to be low by historical standards, citing the ongoing impact of high prices and rising interest rates, as well as lingering concerns about supply and labor shortages.

He pointed out that input cost inflation has accelerated, linked in part to higher wages. That’s increasing concerns the Federal Reserve will be encouraged to be more aggressive in its monetary tightening despite rising recession risks.