Services Sector Leads February Rebound In PMIs As Omicron Fears Abate

After unexpectedly plunging in January (accelerating a multi-month downtrend since peaking in Q2/Q3 last year), Markit's US PMIs were both expected to rebound modestly in preliminary February data and they did notably more than expected.

• Markit US Manufacturing Index rose from 55.5 to 57.5, well above the 56.0 expected

• Market US Services Index soared from 51.2 to 56.7, notably better than the 53.0 expected - a big bounce from the lowest print since July 2020.

 Source: Bloomberg

February data highlighted a sharp and accelerated increase in new business among private sector companies that was the fastest in seven months. Firms mentioned that sales were boosted by the retreat of the pandemic, improved underlying demand, expanded client bases, aggressive marketing campaigns, and new partnerships. Customers reportedly made additional purchases to avoid future price hikes. Quicker increases in sales were evident among both manufacturers and service providers.

Rising from an 18-month low of 51.1 in January to 56.0 in February, the seasonally adjusted IHS Markit Flash US Composite PMI Output Index indicated a substantial expansion in private sector output that outpaced the long-run series average.

Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said:

“The pace of economic growth accelerated sharply in February as virus containment measures, tightened to fight the Omicron wave, were scaled back. Demand was reported to have revived and supply constraints, both in terms of component availability and staff shortages, moderated.

“With demand rebounding and firms seeing a relatively modest impact on order books from the Omicron wave, future output expectations improved to the highest for 15 months, and jobs growth accelerated to the highest since last May, adding to the upbeat picture.

“The service sector rebounded especially impressively, accompanied by a more muted upturn in manufacturing. Goods producers remain hamstrung by supply shortages which, although easing to the lowest since last May, continued to severely limit production growth, resulting in a further large rise in backlogs of work.

“The supply constraints also contributed to a further marked increase in firms’ costs, which rose yet again at another near-record pace in February. Increasing numbers of companies sought to pass these higher costs on to customers, resulting in the largest increase in average prices charged yet recorded by the survey.

“With growth rebounding sharply amid resurgent demand, and price pressures rising again to an all-time high, the survey will add to expectations of a more aggressive policy tightening by the FOMC.”

Finally, we note that prices charged for goods and services in the US rose at a record pace in February as companies continued to share additional cost burdens with their clients.