US business activity falls to 3-month low as virus cases slam recovery momentum, IHS says

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US business activity falls to 3-month low as virus cases slam recovery momentum, IHS says
AP Photo/Chris O'Meara
  • IHS Markit's gauge of US business activity fell to 55.7 from 58.6 in an early December reading, marking its lowest level in three months.
  • Softened activity in the services industry weighed on the broader index as stricter lockdown measures and rising COVID-19 cases slammed demand.
  • IHS's purchasing managers' index for the manufacturing industry fared far better, falling just 0.2 points to 56.5 this month.
  • "Vaccine developments mean some of the cloud caused by the pandemic should lift" in 2021, but the current state of the pandemic worsens the economy's near-term outlook, Chris Williamson, the chief business economist at IHS Markit, said.

A key measure of US economic activity snapped a two-month streak of improvements as soaring COVID-19 case counts prompted new restrictions in December.

IHS Markit's flash composite index of US business activity fell to 55.7 from 58.6 this month, according to a Wednesday release. The reading marks the gauge's lowest level since September. Still, readings above 50 indicate overall growth.

A slowdown in services dragged on the broader index. IHS's flash index of service-industry activity fell to a three-month low of 55.3 from 58.4 as renewed lockdowns weakened demand. Input prices climbed as firms shouldered the costs of additional PPE and stronger inflation.

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November saw the Thanksgiving holiday lift business confidence, but stricter economic restrictions are now reversing some of those gains, Chris Williamson, the chief business economist at IHS Markit, said.

"While vaccine developments mean some of the cloud caused by the pandemic should lift as we head through 2021, rising case numbers continue to darken the near-term outlook," he added.

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Manufacturing held up considerably better. IHS's flash purchasing managers' index for the industry fell just 0.2 points to 56.5 in December. Growth in output and new orders remained healthy, and firms were "historically upbeat" regarding future growth. Raw materials shortages and subsequent delays fueled some constraints, IHS said.

A final December reading for IHS's service and manufacturing gauges is set to be published on January 4. The virus's trajectory suggests the month's data will only worsen into 2021. The US reported 189,783 new COVID-19 cases on Tuesday, according to The COVID Tracking Project. Hospitalizations neared 113,000 and total deaths surpassed 295,000.

Business conditions are also on the verge of deteriorating further. New York City Mayor Bill de Blasio on Monday said residents should prepare for a second full lockdown and a prolonged period of working from home.

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Though coronavirus vaccines are being distributed across the country, public health experts warn that heightened community spread and cold winter weather will exacerbate the pandemic before herd immunity is achieved.

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