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Output contracts for first time since October 2013 in U.S.

Christian Fernsby |
Private sector firms across the U.S. signalled a slight decline in business activity in February.

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Topics: U.S.   

The overall contraction was driven by a notable worsening of service sector performance, where output fell for the first time in four years.

Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 49.6 in February, down from 53.3 in the opening month of 2020.

Although only fractional, the decrease in business activity brought to an end a near-four year sequence of expansion following a contraction in service sector output and a slower rise in manufacturing production amid supplier delays following the outbreak of coronavirus.

The composite index is based on original survey data from IHS Markit’s PMI surveys of both services and manufacturing.

New orders received by private sector firms fell for the first time since data collection began in October 2009.

The fractional decline in new business stemmed from weak client demand across the service sector and the slowest rise in manufacturing new order volumes for nine months.

Private sector companies continued to struggle to attract foreign client demand as new export orders fell for the second month running.

Employment continued to increase midway through the first quarter, albeit at the slowest pace in the current four-month sequence of growth.

Manufacturers and service providers alike registered a rise in workforce numbers, although the pace of job creation eased in both monitored sectors.

Inflationary pressures softened in February.

The rate of increase in cost burdens eased to the slowest since last October amid reports of lower demand for inputs.

As a result, private sector companies raised their output charges at the softest pace for three months.

Business confidence strengthened to an eightmonth high in February but remained historically subdued as firms highlighted ongoing global uncertainty and the outbreak of coronavirus.

The seasonally adjusted IHS Markit Flash U.S. Services PMI Business Activity Index registered 49.4 in February, down from 53.4 in January.

The latest data signalled the first decline in business activity for four years and a notable turnaround from the solid output expansion seen in the opening month of the year.

The contraction in output was in part driven by a renewed decrease in new business across the service sector.

Although only fractional overall, the rate of decline was the strongest in the series history (since October 2009).

New export orders also fell as firms reported greater hesitancy among clients to place orders amid speculation regarding coronavirus.

Pressure on capacity was reduced in February, as the level of outstanding business fell.

As a result, services companies increased their workforce numbers at a softer rate.

That said, business confidence reached the strongest since last June.

At the same time, input prices rose at the slowest pace in the current five-month sequence of inflation and was only slight overall.

In an effort to remain competitive, firms raised their output charges only fractionally.

Goods producers noted only a slight improvement in operating conditions in February, as signalled by a fall in the IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) 1 from 51.9 to 50.8 midway through the first quarter.

The improvement in the health of the manufacturing sector was the slowest since last August.

The lower headline index reading was partially driven by slower expansions in production and new orders.

The upturn in output was the softest since last July, with firms stating that weak demand conditions and delays in deliveries following the outbreak of the coronavirus in China had dented production growth.

Although output expectations improved and reached a ten-month high, business confidence remained relatively muted as firms suggested uncertainty surrounding the impact of coronavirus had weighed on optimism and could further impact production.

Meanwhile, inflationary pressures remained historically subdued midway through the first quarter amid a slower rise in cost burdens.

Firms only raised their charges fractionally as they sought to remain competitive and boost sales.

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