U.S. business activity in January held steady, with modest expansion in manufacturing and service sectors, but firms continued to cite cost pressures from tariffs and labor challenges, according to a widely followed private survey released Friday. The composite PMI indicated that output remained above the growth threshold, though the pace of expansion barely changed from December levels. Companies reported rising input costs linked to import duty expenses and supply chain inefficiencies, which limited profit margin expectations. Businesses also flagged ongoing difficulties in recruiting staff for key roles despite some improvement in demand indicators. Economists say that steady activity amid cost headwinds shows resilience but underscores inflation concerns for policymakers.

Services industries led the expansion, supported by domestic consumption, while manufacturing output grew more modestly, reflecting lingering global demand headwinds. New orders increased but at a slower pace than seen earlier in the quarter, suggesting some softening in external demand. Firms continued to adjust pricing strategies in response to elevated input costs, which have remained sticky even as some inflation gauges moderate.
Employment within the private sector inched upward, but the labor market showed signs of stagnation, with some firms reporting difficulties in filling open positions and concerns over wage pressures. Labor cost inflation remained a key theme in commentary from business leaders. Consumer sentiment improved marginally in January, though overall confidence stayed below longer-term averages as affordability pressures persisted.
Inflation expectations among firms remained elevated, with many anticipating continued cost pass-through to customers amid sustained price pressures for both goods and services. The survey’s price indices suggested that inflation may remain above central bank targets for some time, influencing monetary policy deliberations.

Market watchers say U.S. activity data reinforces expectations that the Federal Reserve is likely to maintain its policy stance for now, holding rates steady as it watches incoming inflation and labor reports, even as global uncertainties persist.

Source: Reuters.