U.S. business activity slowed to a ninth-month low in January amid rising price pressures, but firms reported boosting hiring, supporting the Federal Reserve’s cautious approach to cutting interest rates this year.
S&P Global said on Friday that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, declined to 52.4 this month. That was the lowest level since April and was down from 55.4 in December. A reading above 50 indicates expansion in the private sector.
The services sector accounted for the drop in the PMI, with manufacturing expanding for the first time in seven months on hopes of “looser regulation, lower taxes and heightened protectionism” under President Donald Trump’s new administration. But some worried that potential tariffs would “disrupt supply chains and impact sales, or stoke inflation.”
There were also fears the U.S. central bank could adopt a more hawkish posture to deal with inflation.
Trump, who was sworn in for a second term on Monday, has promised broad tariffs on imports and tax cuts, and is cracking down on illegal immigration.
Uncertainty on the economic impact of the administration’s trade and immigration policies were among factors that prompted the Fed to scale back its projected rate cuts for this year to only two from the four it estimated in September when it launched its policy easing cycle.
“Although output growth slowed slightly in January, sustained confidence suggests that this slowdown might be short-lived,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“Especially encouraging is the upturn in hiring that has been fueled by the improved business outlook, with jobs being created at a rate not seen for two-and-a-half years.”
The survey’s measure of new orders received by private businesses slipped to 54.3 in January from 55.2 in December.
Price increases picked up, with a gauge of average prices paid by businesses for inputs rising to 58.5 from 56.0 last month. The rise was attributed to suppliers raising prices and wage hikes due to worker shortages.
Businesses passed on the higher costs to consumers. A measure of prices charged by businesses for their goods and services increased to 53.8 from 52.1 in December.
The increase was across manufacturing and services sectors, suggesting inflation could stay high for some time. Progress lowering inflation to the Fed’s 2% target has virtually stalled, though underlying price pressures subsided in December.
Businesses were eager to hire more workers this month, but labor shortages constrained some firms. The survey’s measure of employment jumped to 53.7, the highest in 2-1/2 years, from 51.4 in December. It was the second straight monthly increase after declining for four consecutive months.
The rise in employment was mostly in services businesses.
The survey’s flash manufacturing PMI edged up to 50.1, the highest level since June, from 49.4 in December. Economists polled by Reuters had forecast the manufacturing PMI rising to 49.7. Its flash services PMI fell to 52.8 from 56.8 last month. That was well below economists’ expectations for a 56.5 reading.
(Reporting by Lucia Mutikani)
