U.S. business activity remained broadly stable in January, as gains in new orders were offset by a sluggish labor market and ongoing concerns among companies about rising costs linked to import tariffs, according to a survey released on Friday.
Data from S&P Global showed that its flash U.S. Composite PMI Output Index, which tracks both manufacturing and services activity, edged slightly lower to 52.8 in January from 52.7 in December. Any reading above 50 signals expansion in the private sector. The flash readings for both manufacturing and services were largely unchanged during the month.
S&P Global noted that the composite PMI points to a slowdown in economic momentum as the year began, suggesting growth is moderating rather than accelerating.
Official data released on Thursday showed the U.S. economy expanded at an annualized rate of 4.4% in the third quarter. That growth was supported by strong consumer spending and business investment in intellectual property products, widely linked to artificial intelligence, along with a narrower trade deficit.
Meanwhile, the Atlanta Federal Reserve is currently projecting that gross domestic product grew at a 5.4% pace in the final quarter of the year. The fourth-quarter GDP report, which was delayed due to a 43-day federal government shutdown, is scheduled for release on February 20.
Orders improve but confidence softens
The S&P Global survey showed that new orders received by businesses rose to 52.2 in January from 50.8 in December, indicating a modest pickup in demand. However, export activity slipped to a nine-month low, reflecting declines in both goods and services exports.
Business confidence weakened slightly, falling below last year’s average. According to S&P Global, many firms remain concerned about softer demand caused by higher prices, geopolitical uncertainty, and federal government policy.
The survey also highlighted continued stagnation in the labor market. S&P Global said this reflects rising cost pressures and slower sales growth in recent months. Its measure of private-sector employment edged up marginally to 50.5 from 50.3 in December.
Some companies reported ongoing difficulty in hiring workers, a challenge economists partly attribute to stricter immigration policies that have reduced labor supply.
Tariffs keep price pressures elevated
Measures of prices charged by firms for goods and services eased slightly to 57.2 from 57.3 in December, but remained near the highest levels seen over the past three years. Input prices also declined, with the index falling to 59.7 from 61.9, though still signaling strong cost pressures.
These elevated readings suggest inflationary pressures may persist. While businesses have absorbed some of the cost increases tied to tariffs introduced under U.S. President Donald Trump, helping prevent a sharp inflation spike, prices remain a concern. The Federal Reserve is widely expected to leave interest rates unchanged at its upcoming meeting as policymakers monitor inflation and labor market trends.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said higher costs—often blamed on tariffs—continue to push prices higher for both goods and services, keeping inflation and affordability at the forefront for many businesses.
Consumer sentiment improves, but worries persist
A separate survey from the University of Michigan showed consumer sentiment improved in January, though concerns about inflation and jobs remain. The Consumer Sentiment Index rose to a final reading of 56.4, up from an earlier estimate of 54.0 and from 52.9 in December.
The improvement was broad-based, with sentiment rising among both Republicans and Democrats. However, Joanne Hsu, director of the Surveys of Consumers, noted that overall confidence remains more than 20% below levels seen a year ago, as households continue to feel pressure from high prices and the risk of a weakening labor market.
Consumers’ expectations for inflation over the next year eased to 4.0%, the lowest level since January 2025. Five-year inflation expectations also edged lower to 3.3%, while long-term expectations ticked up slightly from December.
Oren Klachkin, a financial markets economist at Nationwide, said that persistent affordability pressures make a near-term rebound in consumer sentiment unlikely.
