US business activity quickens to start 2021

Improvement here contrasts with Europe, where signs point to double-dip recession

U.S. business activity accelerated at the start of the new year, particularly among manufacturers, while capacity constraints generated more inflationary pressures.

The IHS Markit flash January composite index of purchasing managers at manufacturers and service providers increased to 58, the secondhighest since March 2015, from 55.3 a month earlier, the group reported Friday. Readings above 50 indicate growth.

The improvement stands in stark contrast to the euro area, where the composite gauge contracted for a third-straight month and pointed to a double-dip recession. In Japan, business activity shrank for a 12th month and at the fastest pace since September.

In the U.S., the group’s measure of manufacturing advanced 2 points to 59.1, the highest reading in data back to May 2007. Gauges of production, orders, export demand and employment all strengthened in January.

At the same time, pandemic-related challenges in the supply chain and shortages of some materials continue to drive up input prices. Producers are having some success passing those along to customers.

“Not only have the last two months seen supply shortages develop at a pace not previously seen in the survey’s history, but prices have also risen due to the imbalance of supply and demand,” Chris Williamson, chief business economist at IHS Markit, said in a statement. “Input cost inflation consequently also hit a survey high and exerted further upward pressure on average selling prices for goods and services.”

The IHS Markit’s flash services PMI also improved in January, though new business softened as some states tightened commercial restrictions to combat a resurgent coronavirus. Employment growth was the slowest in six months.