U.S. economy gets off to weak start in 2023, S&P finds

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The numbers: The U.S. economy got off to a weak start in 2023. Business conditions contracted again in January as demand for goods and services fell for the fourth month in a row, S&P surveys showed.

The S&P Global “flash” U.S. services sector index rose to a three-month high of 46.6 from 44.7 in December. The service side of the economy employs most Americans.

The S&P Global U.S. manufacturing sector index, meanwhile, edged up to 46.7 from a 31-month low of 46.2 at the end of last year.

Any number below 50 suggests a contracting economy, however.

The S&P surveys are among the first indicators in each month to assess the health of the economy.

Key details: New orders, a sign of future sales, have tailed off since October.

The decline in demand has helped to ease inflation since the fall, S&P found, but the cost of labor and supplies both rose in January. Companies tried to limit price increases of their own, however, to retain market share.

Employment levels were basically unchanged. Manufacturers created more jobs, but service-oriented firms cut staff for the first time in two and a half years.

In a bit of surprise, executives expressed more confidence about how the economy would perform over the next year.

Big picture: The economy was stung in 2022 by the highest inflation in 40 years. Now it’s getting slammed by rising interest rates as the Federal Reserve aims to bring inflation back down to pre-pandemic levels.

Many economists believe the U.S could sink into recession this year.

Looking ahead: “The U.S. economy has started 2023 on a disappointingly soft note,” said Chris Williamson, chief business economist at S&P Global. “Companies cite concerns over the ongoing impact of high prices and rising interest rates, as well as lingering worries over supply and labor shortages.”

Market reaction: The Dow Jones Industrial Average and S&P 500 fell in Tuesday trades.

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