US Output Growth Hits 7-Month High In January: Services Lead, Manufacturing Rebounds

The U.S. economy demonstrated a robust beginning to 2024, according to the latest flash PMI estimates from S&P Global. Marking a significant upturn, overall business activity accelerated to its fastest pace since mid-2023, driven predominantly by the service sector, with manufacturing also showing signs of recovery following a prolonged slump.

S&P Global US PMI January 2024: Key Highlights

• Manufacturing PMI: Surged to 50.3, up from 47.9 in December 2023, surpassing the forecast of 47.9. It marks the first month of expansion since April 2023 and the highest growth since October 2022. This leap marks the end of a lengthy contraction phase.
• Services PMI: Climbed to a seven-month peak of 52.9, up from December’s 51.4, outperforming market predictions of 51.
• Composite PMI: Jumped from 50.9 to 52.3, indicating the most rapid expansion in business activity since June 2023.

Chart: US Private Sector Activity Expands In January

Major Growth Drivers In January 2024

• Demand Improvement: Firms reported a broad-based uptick in demand for goods and services, fueling new order growth.
• Business Confidence: Reached a 20-month high, driven by improved sales and optimistic projections for the year.
• Price Dynamics: Overall input costs rose at a slower pace, and selling prices increased at the slowest rate since May 2020.
• Employment Trends: Companies marginally increased workforce numbers as work backlogs rose for the first time in 10 months.

After the release of the PMI data, the U.S. stock market continued its upward trajectory, extending toward new all-time highs. The S&P 500, as monitored by the SPDR S&P 500 ETF Trust SPY, was 0.5% higher at 9:15 a.m. in New York.

Economist’s Take

Chris Williamson, chief business economist at S&P Global Market Intelligence, highlighted the robust start to the year, citing a marked acceleration in growth alongside a significant cooling of inflation pressures. He emphasized the improvement in output across both goods and services and noted the pickup in new orders.

"Confidence has also been buoyed by hopes of lower inflation in 2024, easing the cost of living squeeze and facilitating the path to lower interest rates. With prices rising in January at the slowest rate since the initial
pandemic lockdowns of early 2020, companies report that selling price inflation is now below the pre-pandemic average and consistent with consumer price inflation dropping below the Fed's 2% target,” he said.

The economy faces ongoing challenges such as increased supply delays and a tight labor market that could maintain upward pressure on costs, he said. Yet the survey data predominantly conveys a positive outlook of strong economic growth combined with a significant reduction in inflation, Williamson said.

Any Warning Signs?

Despite the positive outlook, certain challenges emerged in January:

• Supply, Transportation Issues: Manufacturers faced material availability issues and transportation delays due to adverse weather conditions.
• Purchasing Activity: Continues to contract in the manufacturing sector, with further depletion of pre-production inventories.
• Output Price Increases: Manufacturers raised output prices significantly, passing higher costs onto customers.

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