U.S. economy slows sharply during omicron wave, Markit surveys show

The U.S. economy is still growing, but omicron has acted as a big drag in early 2022. Seen here is an automated pizza assembly system that is making inroads in the food industry.

Record spread of new coronavirus strain exacerbates labor and supply shortages

The numbers: The U.S. economy dropped down to a slower gear in January amid a record outbreak of coronavirus cases that intensified labor and supply shortages, according to pair of IHS Markit surveys of senior business executives.

A “flash” index of service-oriented companies tumbled to an 18-month low of 50.9 from 57.6 in the final month of 2021, IHS Markit said. A similar gauge of manufacturers dropped to 55 from 57.7 in December — a 15-month low.

The flash IHS surveys give the first clear indication of the damage done to the U.S. economy in the first month of the new year.

Any reading above 50 means businesses are growing and numbers above 55% are quite healthy. Yet conditions aren’t as good as they were last fall, no thanks to the latest strain of the coronavirus.

“Labor shortages, employee absences and the omicron wave reportedly weighed on growth,” IHS Markit said.

Big picture: Omicron clearly dented the economy in January. Millions of people missed time from work and the virus disrupted already strained supply chains. Restaurants and other businesses that “serve” customers directly were the hardest hit.

Yet with cases peaking, most business leaders believe growth will re-accelerate in the near future. Their biggest problem is an ongoing lack of supplies and labor.

Key details: The increase in prices, a sign of inflation, was the slowest since last spring. The IHS report suggested that supply bottlenecks are still high but slowly easing.

New orders, a sign of future sales, also remained strong. Employment was mixed.

Despite ongoing difficulties, most executives remained optimistic that the economy would improve later in the year. They expect omicron to fade like other coronavirus waves and anticipate congestion in supply lines to slowly clear up.

Executives are still worried about labor shortages, however, and rising wages associated with the dearth of people willing to accept jobs.

Looking ahead: “Despite the survey signaling a disappointing start to the year, there are some encouraging signals for the near-term outlook,” said Chris Williamson, chief business economist at IHS Markit.

Market reaction: The Dow Jones Industrial Average DJIA, -0.06% and S&P 500 SPX, +0.52% sank again in Monday trades. Stocks have tumbled this year in anticipation of the Federal Reserve raising interest rates. Tensions between the U.S. and Russia over Ukraine are adding to the angst.


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