U. S. economy starts to recover slowly in January
2023.01.24 13:04
U. S. economy starts to recover slowly in January
By Ray Johnson
Budrigannews.com – In January, U.S. business activity fell for the seventh month in a row. However, the downturn eased for the first time since September in both the manufacturing and the services sectors, and business confidence rose as the year began.
However, at the same time, a S&P Global (NYSE:) survey Price pressures increased for the first time since spring, indicating that the U.S. Federal Reserve’s aggressive efforts to control inflation are not yet complete. This makes it more likely that the U.S. central bank will need to raise interest rates to keep the pressure on, including at the first policy meeting of the year next week.
From a final reading of 45.0 in December, S&P Global’s Flash U.S. Composite Output Index increased to 46.6 in January. Readings below 50 indicate a contraction in activity. Even though that was the highest level in three months, businesses still reported that demand was weak and that high inflation was preventing customers from spending money.
On the manufacturing side, this month’s flash Manufacturing PMI from S&P Global came in at 46.8, up from 46.2 in December and above the median estimate of 46.0 from Reuters’ survey of economists.
The rate of contraction in the vast services sector, which accounts for two-thirds of U.S. economic output, slowed in January to 46.6 from 44.7. That was also higher than the median estimate of 45.0 found in the Reuters poll.
“The worry is that, not only has the survey indicated a downturn in economic activity at the start of the year, but the rate of input cost inflation has accelerated into the new year, linked in part to upward wage pressures, which could encourage a further aggressive tightening of Fed policy despite rising recession risks,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. Meanwhile, the survey’s measures of input prices for both goods producers and services firms rose month-over
The Federal Reserve (Fed) raised its benchmark rate from close to zero in March to a range of 4.25 percent to 4.50 percent in December of the previous year after being slow to recognize that rising inflation was not the temporary phenomenon it had hoped it would be. It was the most aggressive tightening of monetary policy since the 1980s, and the goal was to get inflation back to its target of 2% per year.
As of November, the Fed’s preferred measure of inflation had fallen to 5.5% from its June peak of 7%. The Personal Consumption Expenditures price index, which will be updated for December later this week, appears to have moderated further in December, but Fed officials meeting next week on January 31-Feb will still find it far too high. 1. On the way to a policy rate that officials see rising above 5% this year, another quarter-percentage point increase is anticipated.
The S&P Global survey is the most recent indication that the U.S. economy is cooling down, largely as a result of the Fed’s rate hikes. However, it is still unclear whether the economy will enter a recession.
Other indicators indicate that demand for services remains on a more solid footing, despite the fact that consumer demand for goods has shown a notable cooling as a result of Fed rate hikes making purchases like homes and automobiles more expensive.
In addition, the U.S. job market remains tight despite increasing anecdotal evidence of businesses cutting back on hiring and, in some cases, terminating employees. As the new year got underway, there was little to no growth in the number of people on unemployment benefit rolls. In December, the national unemployment rate was 3.5 percent, which brought it back to levels that were 50 years ago, right before the pandemic.
The forward-looking indexes of the S&P Global survey did show increased optimism regarding the outlook, indicating that businesses anticipate the situation will improve later in the year.
“Companies hopeful of a resurgence in customer demand as 2023 progresses,” it stated, “the pick-up in positive sentiment was broad-based.”
