US Markit Composite PMI DecP: 56.9 (Prev 58.2) - Flash PMI's Soften A Bit But Remain Well In Expansion Territory - New Orders At 5-Mth High - Neil's Summary

• US Markit Manufacturing PMI DecP: 57.8 (est 58.5, prev 58.3)
• - Services PMI DecP: 57.5 (est 58.8, prev 58)
• - Composite PMI DecP: 56.9 (prev 57.2)

 (markiteconomics.com)

After falling in November, December Markit flash Composite PMI fell by 0.3 points in December to a 3-month low of 56.9, but remaining firmly in expansion territory above 50 "indicat[ing] a strong upturn in output at the end of 2021."

Both services and manufacturing fell by a half point to 57.5 and 57.8 respectively. New orders remained in expansion territory for a 17th straight month and moved to a five-month high led by services for the first time in months. Manufacturing new orders were at a 14-month low. Input prices paid hit new record levels led by services (manufacturing input prices softened) due to increasing costs for raw materials, transportation, and distribution. Prices charged softened to a three-month low but otherwise remained the fastest recorded (since 2009). With supply chain and labor availability issues continuing to make production difficult, backlogs remained near record levels. Difficulty finding qualified labor particularly in the service sector led to a "marginal" rise in employment. Future expectations, which fell to an 8-month low in October, rebounded further to a 12-month high.

From the report:

US private sector businesses indicated a strong upturn in output at the end of 2021, despite the rate of expansion easing to the slowest for three months. Service sector business activity growth remained especially sharp, with manufacturers registering a slight uptick in the pace of expansion in production. Adjusted for seasonal factors, the IHS Markit Flash US Composite PMI Output Index posted 56.9 in December, down slightly from 57.2 in November, but still signalling a strong rise in private sector business activity.

Although slower than rates seen earlier in the year, the pace of output growth was faster than the historic trend. Supporting the upturn in activity was a quicker increase in new orders during December. The pace of expansion was the sharpest for five months, and largely driven by a faster rise in service sector new business. New order inflows to the manufacturing sector eased to the slowest since October 2020, however. Meanwhile, new export orders increased at the strongest pace since September.

At the same time, inflationary pressures continued to mount, with firms facing ever increasing input prices. The pace of cost inflation accelerated again to reach a fresh series record. Companies reported broad-based upticks in cost burdens, with a range of key materials noted higher in price, alongside soaring transportation and distribution fees. Despite the increase in costs, the pace of inflation of prices charged for goods and services softened for the second month running in December, with some firms mentioning efforts to boost sales amid stronger competition. With the exception of rates seen in October and November, the latest uptick in selling prices was nevertheless the fastest on record (since October 2009).

Ongoing disruptions to supply chains and labor shortages hampered firms’ ability to work through outstanding business at the end of 2021. The expansion in backlogs of work was among the fastest in the series’ history.

Challenges securing suitable candidates and retaining staff led to only a marginal rise in employment, which served to exacerbate pressures on capacity. Staffing difficulties were especially acute in the service sector, which drove the slowdown in job creation. Private sector firms recorded the strongest degree of confidence regarding the 12-month outlook for output for just over a year in December. Optimism stemmed from hopes of further upticks in client demand and that the impact of the Omicron variant is less severe than prior virus waves

Here was the commentary:

Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said: “The survey data paint a picture of an economy showing encouraging resilience to rising virus infection rates and worries over the Omicron variant. Business growth slipped only slightly during the month and held up especially well in the vulnerable service sector. Manufacturing output growth even picked up slightly amid a marked easing in the number of supply chain delays, which also helped to take pressure off raw material prices. Barring the initial price slide seen at the start of the pandemic, December saw the steepest fall in factory input price inflation for nearly a decade.

“The worry is that rising wage growth, greater transport costs and higher energy prices have pushed service sector cost inflation to a new high, and that any renewed disruption to global supply lines resulting from the Omicron wave could lead to renewed upward pressure on goods prices.”

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to Cbus Neil's Blog Posts for more recent or Sethi Associates for the full history.