- IHS Markit's gauge of private-sector growth slowed to 50.8 from 57 in January, the lowest in 18 months.
- Readings below 50 indicate contraction, meaning business output came extremely close to shrinking.
- Firms cited surging virus cases, lingering supply troubles, and the labor shortage for the drop.
The US private sector's recovery is holding on by a thread.
A survey of purchasing managers at various businesses shows growth grinding to a near-halt as the Omicron wave worsened. IHS Markit's composite purchasing-managers index plunged to 50.8 from 57 in January, according to a Monday report, marking the lowest reading since July 2020. The decline was fueled by weakening conditions at manufacturers and services, with both citing the variant for sharply slower output through the month.
The PMI details how quickly the country's private sector is either growing or contracting. Prints above 50 indicate growth, while those below the threshold hint businesses are shrinking. While the Monday reading doesn't quite place the economy back in a recession, it signals the booming recovery of 2021 is all but entirely over.
Service businesses fared even worse. The industry's own PMI dipped to 50.3 from 53.8, hitting a 19-month low and flirting with its first contraction since the onset of lockdowns in early 2020. Services have been the most prone to virus waves, as soaring infections have forced the renewal of economic restrictions and prompted people to stay inside.
IHS Markit's manufacturing-specific measure fell slightly less to 55 from 57.7. That still reflected the weakest growth in 15 months.
Apart from the surge in Omicron cases, businesses linked the slowdown to supply issues and continued difficulty in rehiring. Recent data showed retail sales tanking in December as consumer demand waned and virus fears intensified. Though most indicators haven't yet revealed the recovery's performance in January, case counts were higher through most of the month. With the supply chain still far from healed, Monday's PMI report hints at even more disappointing January data to come.
Still, the report did offer some signs of inflation easing through the month. The rate of increase in costs was the weakest since March 2021, albeit still at historically high levels. The manufacturing industry saw signs of inflation pressure waning in both production and selling prices, Markit said.
The supply situation also took a turn for the better. Manufacturers reversed course and offered rosier outlooks regarding future output, with confidence hitting its highest since November 2020. Firms reported hopes for stabilizing supply flows and fading fallout from the virus. While services' confidence slumped to a three-month low, other signs pointed to an easier business environment on the horizon.
"The overall rate of supply chain deterioration has eased compared to that seen throughout much of the second half of last year," Chris Williamson, chief business economist at IHS Markit, said in the report. "Despite the survey signaling a disappointing start to the year, there are some encouraging signals for the near-term outlook."