The Institute for Supply
Management‘s (ISM) monthly sentiment survey of U.S. manufacturers for January 2023 contracted
further. The
Activity in the services sector -- which accounts for 80% of the economy and 90% of employment -- rebounded into expansion in January (+6.0PP, to 55.2%). New orders (+15.2PP), exports (+11.3PP), and inventories (+4.1PP) exhibited the largest changes.
Of
the industries we track, only Real Estate and Ag & Forestry expanded. Respondent
comments included the following:
Construction. “New residential housing market is still reeling
from mortgage rate increases. Sales have fallen off dramatically at entry-level
price points, as costs are trending flat.”
Real
Estate. “We're still experiencing
delivery delays, but fewer than the past two years. Hopefully, lead times will
return close to pre-COVID-19 levels.”
Changes
in S&P Global’s survey
headline results were mixed relative to ISM’s. Both showed contraction in the
manufacturing sector, but the contraction in S&P’s services survey disagreed
with ISM’s expansion. Details from S&P Global’s surveys follow --
Manufacturing. Further solid decline in manufacturing performance
at start of the year.
Key findings:
* Falls in output and new orders soften only slightly
* Price pressures regain momentum
* Job creation slows to only a fractional rate
Services. Business activity contraction eases at start of
2023, but cost pressures strengthen once again.
Key findings:
* Demand conditions deteriorate at slower pace
* Input price inflation accelerates for first time since May 2022...
* ...but selling prices rise at slowest rate since October 2020
Commentary
by Chris Williamson, S&P Global’s chief business economist:
Manufacturing. “Despite rising in January, the PMI remains at one
of the lowest levels recorded since the global financial crisis, indicating a
worryingly steep rate of decline in the health of the goods producing sector.
Production has now fallen for three successive months, signaling a sharp fall
in output which is now becoming increasingly evident in the official statistics
and suggesting that the manufacturing sector has become a major drag on GDP.
“New
orders are also slumping as demand from both domestic and export customers
comes under increasing pressure from a mix of inflation and slower economic
growth. The drop in orders also means that excess capacity is developing, which
has in turn meant companies have scaled back their hiring and purchasing, and
are also increasingly focusing on reducing their inventory levels.
“Improved
supply chains and weaker demand should meanwhile help keep a lid on
manufacturing price pressures in the months ahead, though a slight uptick in
the survey’s input cost and selling price gauges in January suggests that the
road to lower inflation could be bumpier than previously anticipated,
reflecting still elevated prices for many raw materials relative to pre-pandemic
levels and sustained upward wage pressures.”
Services. “Business activity in the vast U.S. services economy
contracted in January as companies reported a further deterioration in new
business inflows. Hiring has almost ground to halt as firms reassess their
payroll needs in the light of the weaker demand environment.
“The
downturn is being led by a slump in financial services activity, linked in turn
to higher borrowing costs, with consumer-facing service providers also
reporting especially tough business conditions amid the ongoing squeeze in
spending due to the rising cost of living.
“Combined
with the fall in manufacturing output recorded during the month, the service
sector’s downturn at the start of the year adds to the risk that the U.S.
economy could contract in the first quarter.
“The
January survey meanwhile brought mixed messages on inflation. While costs were
boosted in part by rising wage pressures, reflecting the tight labor market,
tough competition once again limited scope to pass on these higher costs to
customers in the form of higher prices.”
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.
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