By Robb M. Stewart
U.S. services activity again contracted in January, though the sector saw a modest improvement from the tail end of last year even as cost pressures once again picked up, a purchasing managers index released Friday showed.
The S&P Global U.S. Services PMI index strengthened slightly to 46.8 in the first month of the year from 44.7 in December. The figure was broadly in line with the preliminary reading of 46.6 and remains solidly below the 50 threshold separating expansion from contraction.
Services activity in January reflected a slower pace of deterioration in demand conditions and an acceleration in input prices for the first time since last May, though selling prices rose at the slowest rate since October 2020 and the pace of employment growth slowed.
"The downturn is being led by a slump in financial services activity, linked in turn to higher borrowing costs, with consumer-facing service providers also reporting especially tough business conditions amid the ongoing squeeze in spending due to the rising cost of living," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
He said the January survey presented mixed messages on inflation, as costs were boosted in part by rising wage pressures thanks to a tight labor market, but tough competition once again limited the scope to pass on higher costs to customers in the form of higher prices.
"Combined with the fall in manufacturing output recorded during the month, the service sector's downturn at the start of the year adds to the risk that the U.S. economy could contract in the first quarter," Mr. Williamson said.
The S&P Global U.S. Composite PMI, which tracks activity in both manufacturing and services sectors, came in at 46.8 in January from 45.0 in December.
The services survey showed new business fell for a sixth time in the last eight months, though at only a marginal pace in January. S&P Global said the decline in new orders was linked to lower purchasing power among customers amid inflationary pressures.
New export orders also decreased in January, with the rate of contraction in new business from abroad quickening.
Cost pressures intensified in January, ending seven months of easing input price inflation.
Employment across the service sector increased further in the opening month of the year, extending the run of job creation that began in July 2020, though S&P Global said the pace slowed.
Business optimism improved in January, with service companies pointing to stronger expectations on the outlook for output over the coming year. Hopes of an increase in new orders, investment in cost-savings and increased spending on marketing were often linked to positive sentiment, the survey found.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
02-03-23 1031ET
