US business activity moderates in February

WASHINGTON (Reuters) – U.S. business activity cooled in February and there was encouraging news on inflation, with a measure of prices paid for inputs falling to the lowest level in nearly 3-1/2 years, which could allay fears that price pressures were picking up.

S&P Global said on Thursday that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, slipped to 51.4 this month from 52.0 in January. A reading above 50 indicates expansion in the private sector.

The services sector accounted for the moderation in business activity. Manufacturing activity increased to a 17-month high.

The survey suggested the economy continued to expand in the first quarter despite a raft of weak January data, including retail sales, housing starts and manufacturing output, which was blamed on frigid temperatures across the nation.

The S&P Global survey’s measure of new orders received by private businesses fell to 51.3 this month from 52.6 in January. Its measure of prices paid for inputs dropped to 55.0, the lowest level since October 2020, from 56.9 in January.

Government data last week showed bigger-than-expected rises in consumer, producer and import prices in January, which most economists attributed to start of year price increases. But others worried inflation could be picking up.

Financial markets have pushed back their expectations for the first interest rate cut from the Federal Reserve to June from May. Since March 2022, the U.S. central bank has raised its policy rate by 525 basis points to the current 5.25%-5.50% range. The survey’s measure of selling prices ticked up in February. Businesses maintained their employment levels.

“Although up slightly in February, the survey’s gauge of selling prices for goods and services continues to run at a level consistent with the Fed hitting its 2% inflation target, and a further fall in cost growth to the lowest since October 2020 hints at price pressures remaining subdued in the coming months,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Manufacturing activity perked up, with the survey’s flash manufacturing PMI rising to 51.5, the highest reading since September 2022, from 50.7 in the prior month. New orders rose as did employment, but the pace of increase in input prices continued to moderate.

“Better weather conditions compared to January trumped shipping concerns, helping drive an overall improvement in supplier delivery times, which in turn facilitated higher factory production,” said Williamson. “Signs of inventory reduction policies becoming less widespread also helped boost production and sustain high levels of business confidence in the outlook for the year ahead among manufacturers.”

The survey’s flash services sector PMI fell to 51.3 from 52.5 in the prior month. The new orders, employment and input prices sub-components all declined.