By Xavier Fontdegloria


U.S. business activity weakened again in January, adding to signs of a slowing economy at the beginning of the year as still-high inflation and rapidly increasing interest rates weigh on demand.

The S&P Global Flash Composite Output Index, which gauges activity in the manufacturing and services sectors, rose to 46.6 in January from 45.0 in December, a three-month high but remaining under the 50 threshold which separates expansion from contraction for a seventh consecutive month.

The index suggest business activity contracted in January at a softer pace compared with the previous month. Still, firms reported subdued customer demand and a hit of high inflation on client spending, the report said.

"The U.S. economy has started 2023 on a disappointingly soft note," S&P Global Chief Business Economist Chris Williamson said. "Although moderating compared to December, the rate of decline is among the steepest seen since the global financial crisis," he said.

Activity fell across both services and manufacturing sectors, the data showed.

The flash U.S. services PMI rose to 46.6 from 44.7, beating the 45.0 consensus forecast from economists polled by The Wall Street Journal. The reading suggests an overall solid fall in activity, but less so than in December as the decline in new business was only marginal.

"That said, customer hesitancy and the impact of inflation on spending remained a key drag on new domestic and external sales" for services firms, the report said.

The U.S. manufacturing PMI increased to 46.8 from 46.2, above the 46.0 consensus forecast. Factory output contracted after a sharp drop in new orders, with firms reporting a hit on client demand due to high costs.

Survey data also pointed to cooling job growth and reviving inflation pressures. "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 Federal Reserve policy despite rising recession risks," Mr. Williamson said.


Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com


(END) Dow Jones Newswires

01-24-23 1025ET