US growth slows to 547-day low with worsened supply delays: IHS Markit

Rising cases of the novel coronavirus have brought the US economy to a near standstill at the beginning of this year, with businesses disrupted by worsening supply chain delays and staff shortages, and new restrictions to control the spread of the omicron variant adding to firms’ headwinds, according to IHS Markit. However, there are some encouraging signals for the near-term outlook.

Adjusted for seasonal factors, the IHS Markit flash US composite purchasing managers’ index (PMI) output—covering both manufacturing and service sectors—posted 50.8 in January, down sharply from 57 in December. The resulting increase in activity was only marginal, and the smallest since July 2020.

The January flash PMI is therefore indicative of annualised gross domestic product (GDP) growth close to stalling at the start of 2022, representing a marked contract to the robust growth of 3.25-3.5 per cent signalled for the fourth quarter of 2021.

Rising cases of the novel coronavirus have brought the US economy to a near standstill this year, with businesses disrupted by worsening supply chain delays and staff shortages, and new restrictions to control the spread of the omicron variant adding to firms’ headwinds, says IHS Markit. However, there are some encouraging signals for the near-term outlook.

Both manufacturing and service sector firms in the United States reported near-stagnant output as the steep spike in virus cases associated with the omicron wave dented demand and meant ongoing supply issues and labour shortages were exacerbated by renewed pandemic related containment measures, IHS Markit said.

Although output was constricted by the omicron wave, demand growth remained somewhat more resilient. New orders for goods and services continued to rise strongly, albeit registering the weakest rise since December 2020.

The resulting gap between output and new orders was the second largest recorded by the survey to date, exceeded in the last 12 years only by the gap seen in October 2013, reflecting the near-unprecedented constraints on output recorded in January due to the flare up of COVID-19 cases and accompanying virus containment precautions.

However, prospects differ between the two major sectors of the economy. The upturn in new orders was supported primarily by the service sector, as manufacturers saw new sales growth held back by weaker demand from clients, often amid resistance to price rises.

Renewed restrictions in key export markets and raw material shortages also led to a softer upturn in new export orders. Thus, while inflows of new business into the service sector grew at a solid rate that was only slightly weaker than the average seen over the fourth quarter of last year, factory orders growth slowed to the weakest since July 2020.

Although demand growth at factories waned, the survey brought some encouraging news on the supply chain crunch, IHS Markit noted..

Although supply chain delays continued to prove a persistent drag on the pace of economic growth, linked to port congestion and shipping shortages, the overall rate of supply chain deterioration eased compared to that seen throughout much of the second half of last year.

Average supplier delivery times lengthened to a slightly greater degree than in December due to the Omicron impact, but the extent of delays remained far below that seen throughout much of the second half of 2021.

This trend of alleviating supply constraints has in turn helped lift manufacturing optimism about the year ahead to the highest for over a year, and has also helped bring the rate of raw material price inflation down.

The overall easing of input cost pressures in January therefore provides a tentative signal of a peaking in the annual rate of US consumer price inflation, though it is clear than the rate of inflation signalled remains elevated by historical standards, and far in excess of the Federal Reserve’s policy target.

There remain many uncertainties and potential headwinds, however, London-based IHS Markit noted. Although cost inflation has cooled, it remains highly elevated and is being supported by high wages and soaring energy costs, the latter having the potential to remain problematic in the face of rising geopolitical tensions. The impact of omicron on Asian supply chains is also not yet evident.

Fibre2Fashion News Desk (DS)