PMI of 46.6 in Jan 2023 reflects decline in US business activity

Companies continued to highlight subdued customer demand and the impact of high inflation on client spending. At the same time, new orders across the private sector declined for the fourth successive month in January. The fall in new business was modest overall, and eased to the slowest for three months, according to a press release by analytics company S&P Global.

Inflation, interest rates, and customer hesitancy continued to be reported as driving the downturn. Manufacturers saw new orders fall sharply once again. Bringing to an end a seven-month sequence of moderating input price rises, January data indicated a faster increase in cost burdens at private sector firms.

Although well below the average rise seen over the prior two years, the rate of cost inflation quickened from December and was historically elevated. Hikes in vendor prices, alongside higher wage bills, reportedly spurred the sharper rise in costs.

Nevertheless, the rate of output charge inflation at private sector firms was unchanged from that seen in December 2022. January data signalled a solid uptick in selling prices, but one that was the joint-slowest since October 2020. Efforts to remain competitive and offer concessions to customers dampened output price hikes.

Meanwhile, business confidence strengthened at the start of the year. Despite still being below the historic series trend, the degree of optimism was the highest for four months. The pick-up in positive sentiment was broad-based, with companies hopeful of a resurgence in customer demand as 2023 progresses.

At 46.8 in January, the S&P Global Flash US Manufacturing PMI was up slightly from 46.2 in December, to signal a solid decline in operating conditions at the start of 2023. Although softening, the rate of decline was the second-fastest since May 2020 as manufacturing demand conditions remained subdued.

Driving the overall downturn was a third consecutive fall in production at manufacturers in January. Output contracted following another sharp drop in new order inflows, with firms highlighting the impact greater costs were having on client demand. The rate of decline in new business was the second-fastest in over two-and-a-half years, added the release.

Nonetheless, the fall in new export orders was only modest overall, as external demand conditions contracted at the slowest pace since June 2022. Input prices increased at a faster pace in January, thereby ending a sequence of moderation in cost inflation that began in mid-2022. Despite firms noting hikes in vendor prices, that rate of inflation was softer than the long-run series trend. Vendor performance deteriorated only marginally at the start of the year, with supply chain disruption much reduced from that seen in 2022.

At the same time, muted purchasing activity at manufacturers dampened cost increases. Input buying fell at the sharpest pace since May 2020, as firms instead worked through their stocks of purchases and finished goods.

“The US economy has started 2023 on a disappointingly soft note, with business activity contracting sharply again in January. Although moderating compared to December, the rate of decline is among the steepest seen since the global financial crisis, reflecting falling activity across both manufacturing and services,” commented Chris Williamson, chief business economist at S&P Global Market Intelligence.

Fibre2Fashion News Desk (NB)