US Business Activity Expands In January

Operators of U.S. private businesses reported that 2021 is off to a good start overall, but signs of inflation are on the rise, and the jobs market outlook is somewhat gloomy, according to a press release from research firm IHS Markit.

The findings were generated by surveys IHS Markit conducts in the hope of foreshadowing trends that emerge later in high-profile, official surveys.

Among what IHS Markit called in the release its “flash” findings for January 2021 are: the Flash U.S. Composite Output Index is 58, up from 55.3 in December; the Flash U.S. Services Business Activity Index is 57.5, up from 54.8 in December; the Flash U.S. Manufacturing PMI — an abbreviation of purchasing managers index — is 59.1, up from 57.1 in December; and the Flash U.S. Manufacturing Output Index is at 60.5, up from 58.3 in December and the highest level in more than six years.

Trends that emerge from IHS Markit’s data include signs inflation could be increasing. One reason inflation is important is that the U.S. Federal Reserve governors consider it a key factor as they decide whether to take steps to change target interest rates, according to the release.

The release stated in part: “[I]nflationary pressures intensified as supplier delays and shortages pushed input prices higher. The rate of input cost inflation was the fastest on record (since October 2009), as soaring transportation and PPE costs were also noted. A number of firms were able to partially pass-on greater cost burdens, however, as the pace of charge inflation quickened to a steep rate.”

Chris Williamson, chief business economist at IHS Market, said in the release: “U.S. businesses reported a strong start to 2021, buoyed by hopes that vaccine developments will mean the worst of the pandemic is behind us, and that the new administration will provide a stable and supportive environment for stronger economic growth. Output growth accelerated in January to the second-fastest in almost six years, and business optimism about the year ahead surged higher. Over the past three months, business sentiment has been running at its highest since the start of 2015.

“However, capacity constraints are biting amid the growth spurt. Not only have the last two months seen supply shortages develop at a pace not previously seen in the survey’s history, but prices have also risen due to the imbalance of supply and demand. Input cost inflation consequently also hit a survey high and exerted further upward pressure on average selling prices for goods and services.

“There was also disappointing news on the labor market, as near-term concerns over the impact of the pandemic, notably on demand for consumer-facing services, and rising costs led to the weakest employment reading since July.”