The US January manufacturing and services PMI from S&P Global did rise to 46.6 from 45 but still marks the 7th straight month in contraction. The services index was 46.6 vs 44.7 while manufacturing was up .6 pts m/o/m to 46.8.
With respect to services, S&P Global described it as less bad, “that said, customer hesitancy and the impact of inflation on spending remained a key drag on new domestic and external sales.” With respect to profit margins, “Greater wage costs and further increases in supplier prices drove up cost burdens during January. The rate of input price inflation gathered pace and was sharper than that seen in the previous survey period. A steeper rise in costs was not reflected in output prices, however, as the pace of charge inflation matched that seen in December 2022, with firms seeking to drive new orders.” That’s basically the definition of margin degradation. Employment rose “fractionally” while backlogs fell. As for the outlook, “The degree of business confidence reached a four month high amid hopes that domestic and external demand conditions improve.”
While manufacturing did lift a touch m/o/m, “the rate of decline was the 2nd fastest since May 2020 as manufacturing demand conditions remained subdued….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 2nd fastest in over 2 ½ years. Nonetheless, the fall in new export orders was only modest overall.” After falling consistently in the back half of 2022, “input prices increased at a faster pace in January…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.” Firms raised prices at a “fractionally quicker rate.” Employment fell “for the first time since July 2020” with “low work volumes and poor employee retention due to wage pressures often linked to the reduction.” As seen with services though, “goods producers were more optimistic regarding the outlook for output over the coming 12 months at the start of the year.”
The bottom line from S&P Global, “The US economy has started 2023 on a disappointingly soft note, with business activity contracting sharply again in January.” To state again, this is contraction for the 7th straight month as “Companies cite concerns over the ongoing impact of high prices and rising interest rates, as well as lingering worries over supply and labor shortages.”
I’ll add, soft and mild recession is the consensus for sure and maybe so it will be but I’m worried that state could linger rather than being short and the recovery to eventually follow could be mild and soft too. This is due to the higher interest rate environment that will take time for the US economy to get accustomed to and profit margins that will continue to revert off record highs.
US PMI
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.