Manufacturing Rebounds While Services Slow: US Flash PMI Reveals Mixed January Growth

US Manufacturing and Services Growth Diverge in January as Inflation Pressures Mount

The latest S&P Global Flash US PMI® data for January highlights mixed performance across sectors. Manufacturing returned to growth for the first time in six months, with the PMI rising to 50.1 from 49.4 in December, a seven-month high. In contrast, the services sector slowed sharply, with the Services PMI dropping to 52.8 from 56.8, marking a nine-month low. Inflationary pressures increased across both sectors, challenging the outlook despite optimism about future growth.

Manufacturing Shows Signs of Recovery

The manufacturing sector reported a modest improvement in January as production edged up, supported by improved domestic demand. The PMI reading of 50.1 reflects an end to six consecutive months of contraction, while new orders saw their first increase in seven months. However, challenges remain, with inventories declining at the steepest rate in 17 months and ongoing concerns over supply chain delays and rising input costs.

Services Sector Growth Slows Sharply

The services sector maintained its expansion for a 24th straight month, but the pace slowed significantly. The Services PMI fell to 52.8, its lowest level since April, as new business inflows decelerated and export orders contracted for the first time since June. While optimism about future growth remains elevated, adverse weather and rising costs weighed on January’s performance.

Inflation Pressures Intensify Across Sectors

Both manufacturing and services faced accelerating inflation in January, with input costs and selling prices rising at the fastest pace in four months. Manufacturers cited supplier-driven material price hikes, while service providers reported higher staff costs and increased material prices. These pressures led to higher consumer prices, with goods inflation reaching a ten-month high and service prices rising at their fastest pace since September.

Composite PMI Falls as Growth Moderates

The S&P Global Flash US PMI Composite Output Index, which aggregates data from both manufacturing and services, dropped to 52.4 from December’s 55.4—a nine-month low. The report underscores a slowdown in overall business activity, with moderating demand in services offsetting marginal gains in manufacturing.

Market Implications and Forecast

Manufacturing’s modest recovery signals a potential bullish outlook for industrial sectors, but traders should note the rising inflation pressures that could prompt hawkish policy from the Federal Reserve. The service sector’s slowdown highlights vulnerabilities, especially in consumer-facing industries. Overall, traders should remain cautious, focusing on inflation metrics and employment data for cues on near-term market direction.