- S&P Global reported a rise in the U.S. Composite PMI Output Index, reflecting an increase in manufacturing and services activities.
- Both manufacturing PMI and services sector PMI saw significant rebounds.
- Economists predict consistent economic growth despite challenges in material availability and inflation risks.
- The survey also noted an increase in new orders and moderate price elevations for businesses.
- Employment in the private sector continues to grow, despite constraints due to labor shortages.
Rising Composite PMI Output Index
On Wednesday, S&P Global revealed that the U.S. Composite PMI Output Index, which gauges the performance of manufacturing and services sectors, climbed to 52.3 this month, a peak unseen since June last year. This surge, from 50.9 in the preceding month, was buoyed by ascensions in both services and manufacturing operations.
Manufacturing and Services Sector Improvement
A reading above 50 signifies expansion in the private sector. The manufacturing PMI of the survey bounced back to a 15-month pinnacle of 50.3 from a lowly 47.9 in December. In the same vein, the services sector PMI escalated to 52.9, a June peak, from 51.4 the previous month.
Expectations for Economic Growth
This higher composite reading substantiates forecasts made by economists that this year will witness continued economic growth, albeit at a moderate speed. The retreat of inflation in the survey also complements projections that the Federal Reserve may start slashing interest rates in the first half of 2024.
Potential Upswing in Raw Material Prices
However, organizations also reported growing delays in acquiring materials, a factor that could trigger an upswing in raw material costs. These delays were traced back to tough trucking conditions owing to storms and transportation delays. As a result, manufacturing lead times extended for the first time in over a year and by the most since October 2022.
Risks to Inflation
Unforeseen events, such as attacks on shipping lines by Iran-loyal Houthi militants in the Red Sea and a drought in the Panama Canal, could also inflate costs. Chris Williamson, Chief Business Economist of S&P Global Market Intelligence, emphasizes the need for careful monitoring of cost pressures in the impending months.
Flash Composite New Orders Index and Employment Trends
The survey’s flash composite new orders index also rose to a seven-month high of 52.2 in January from 51.2 in December. Prices paid by businesses for inputs have increased at a moderate pace. Private sector employment persists in growing, albeit at a slower pace. Companies reported increasing recruitment to meet “increased business requirements and the hiring of skilled workers for long-held vacancies,” but also noted that “hiring was often constrained by labor shortages.”
Fluctuations in the PMI Output Index and economic developments, as indicated by S&P Global, can potentially influence trading strategies and the Forex market, impacting assets related to the U.S. manufacturing and services sectors.