January PMI data released: US economic growth slows, service sector confidence declines

According to the latest data obtained by Zhitong Finance APP, the U.S. January PMI composite index recorded 52.4, a significant drop from December's 55.4. This data has returned to the level of the second quarter of 2024, contrary to market expectations for an economic confidence boost following the election. Specifically, the services PMI fell to its lowest level since April at 52.8, down from a previous value of 56.8. Confidence in the services sector has weakened compared to the one-and-a-half-year high reached in December last year, but it remains the second-highest level in the past year. Additionally, employment in the services sector grew at the fastest pace in 30 months. In terms of manufacturing, the PMI recorded 50.1, above the market expectation of 49.7 and higher than December's 49.4, indicating a slight improvement in manufacturing. The report also showed that the composite input costs and average selling prices in January grew at the fastest pace in four months. Companies generally reported that price increases driven by suppliers and wage growth due to labor shortages were the main reasons. This price pressure is reflected in both goods and services. If this trend continues, it may raise concerns about the Federal Reserve adopting a more hawkish policy, as strong economic growth, a robust job market, and rising inflation could prompt the central bank to take more stringent measures. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated: "U.S. businesses have started 2025 with optimism, anticipating that the new government will drive stronger economic growth. In particular, the manufacturing sector has significantly raised its expectations for future growth, with many factories looking forward to support from the Trump administration's new policies. Moreover, confidence in the services sector also remains at a high level." He added: "Although output growth slightly slowed in January, the sustained confidence suggests that this slowdown may be temporary. Particularly encouraging is that, driven by improved business prospects, the pace of hiring has reached a new high in two and a half years." However, Williamson also pointed out that rising price pressures are a concern. He mentioned: "Reports from businesses indicate that supplier-driven price increases and wage growth triggered by labor shortages are the main reasons for rising inflationary pressures. If this situation persists, it may exacerbate market concerns about inflation and interest rates."