New orders fell to their lowest level in just over 2-1/2 years in December, severely slowing U.S. corporate activity, while softer demand notably lowered inflation.
The manufacturing and services sectors are tracked by S&P Global’s flash U.S. Composite PMI Output Index, which dropped to 44.6 this month from a final reading of 46.4 in November, according to the company’s announcement on Friday. The index, which shows a contraction in the private sector, dropped below the 50 level for the sixth consecutive month.
The index was expected to be 47 by economists surveyed by Reuters.
The Federal Reserve’s aggressive interest rate rises are having a negative impact on the economy, but the labor market is still strong since employers are reluctant to fire employees after having trouble filling positions during the COVID-19 epidemic years.
The U.S. central bank increased its policy rate by half a percentage point on Wednesday and forecast additional rises in borrowing costs of 75 basis points by the end of 2023. This rate increased this year by 425 basis points from close to zero to a range of 4.25%-4.50%, which is the highest level since late 2007.
The nation was hit by the first wave of the pandemic in May 2020, when the flash composite new orders index fell to 45.8, its lowest level since then. From a final reading of 46.2 in November, it decreased.
As demand declined, supplier deliveries improved and input prices rose more slowly.
Cost burdens increased at the weakest rate since October 2020, and private sector businesses saw a milder increase in output costs, according S&P Global.
The current decrease in producer and consumer prices may continue into the following year, providing respite to people who have been hard hit by excessive inflation. According to government data released this week, consumer prices rose less than anticipated in November for a second consecutive month.
According to Chris Williamson, chief business economist at S&P Global Market Intelligence, “December saw a second consecutive month of faster supplier delivery times, a phenomenon which not only signals improving supply conditions but also tends to herald the shifting of pricing power away from the seller towards the buyer.”
Despite a slowdown from earlier in the year, private sector employment grew again this month.
The survey’s flash manufacturing PMI fell from 47.7 in November to a 31-month low of 46.2 in December. Analysts had predicted that the index would remain at 47.7. Manufacturers reported one of the biggest reductions in new orders since the financial crisis of 2008–2009, while new orders remained muted.
The survey’s flash PMI for the services sector decreased from 46.2 in November to 44.4. The demand for services was similarly sluggish, and input costs were moderating.