U.S. Economy Slows in January to 18-Month Low as Omicron Weighs on Services -- IHS Markit

By Xavier Fontdegloria

Economic activity in the U.S. cooled sharply at the beginning of the year as the rapid spread of the Covid-19 Omicron variant hit the services sector, according to data from a purchasing managers survey released Monday.

The U.S. IHS Markit flash composite purchasing managers index, which gauges activity in both the manufacturing and services sectors, decreased to 50.8 in January from 57.0 in December, signaling the slowest growth since July 2020.

The indicator suggests that economic activity expanded marginally, as it is slightly above the 50.0 point no-change mark, and points to a significant slowdown compared with the previous months.

"Soaring virus cases have brought the U.S. economy to a near standstill at the start of the year, with businesses disrupted by worsening supply-chain delays and staff shortages, with new restrictions to control the spread of Omicron adding to firms' headwinds," said Chris Williamson, chief business economist at IHS Markit.

Firms surveyed pointed to softer demand conditions, persisting supply-chain disruptions and labor shortages linked to the Covid-19 Omicron wave, the report said.

Data from the survey showed that service providers bore the brunt of the Omicron-related hit. Still, activity in factories also cooled, albeit to a lesser degree.

The flash U.S. services PMI declined to 50.9 in January from 57.6 in December, missing the 54.7 consensus forecast from economists polled by FactSet and an 18-month low.

Service providers noted that labor shortages, employee absences and the Omicron wave weighed on growth, with demand conditions holding relatively firm, the report said.

"Output has been affected by Omicron much more than demand, with robust growth of new business inflows hinting that growth will pick up again once restrictions are relaxed," Mr. Williamson said.

The U.S. manufacturing PMI dropped to 55.0 in January from 57.7 the previous month, below economists' estimates of 56.0.

Supply-chain strains continued to drag output, but bottlenecks have eased compared with the levels seen throughout much of the second half of 2021. Optimism among manufacturers about the year ahead stood at the highest level for over a year, and the rate of raw material price inflation eased sharply, the report said.

"Despite the survey signaling a disappointing start to the year, there are some encouraging signals for the near-term outlook," Mr. Williamson said.

Write to Xavier Fontdegloria at [e-mail]

(END) Dow Jones Newswires

01-24-22 1030ET