U.S. business activity weakens further in November - S&P Global survey

© Reuters. A welder works while building a bus frame at the BYD electric bus factory in Lancaster, California, U.S., July 1, 2021. Picture taken July 1, 2021. REUTERS/Mike Blake

WASHINGTON (Reuters) - U.S. business activity contracted for a fifth straight month in November, with a measure of new orders dropping to its lowest level in 2-1/2 years as higher interest rates slowed demand.

S&P Global (NYSE:SPGI) said on Wednesday its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, fell to 46.3 this month from a final reading of 48.2 in October. A reading below 50 indicates contraction in the private sector. Activity is slumping under the weight of the Federal Reserve's most aggressive interest rate-hiking cycle since the 1980s aimed at curbing inflation by dampening economic demand.

The flash composite new orders index dropped to 46.4, the lowest level since May 2020, from a final reading of 49.2 in October. Outside the initial wave of the COVID-19 pandemic, this was the worst reading since 2009.

"Companies are reporting increasing headwinds from the rising cost of living, tightening financial conditions - notably higher borrowing costs – and weakened demand across both home and export markets," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

But there were some glimmers of hope in the fight against inflation. The survey's measure of prices paid by businesses for inputs slipped to 65.7, the lowest level since December 2020, from a final reading 67.0 in October. That reflected an easing in supply bottlenecks.

Businesses were also raising prices for their products at the slowest pace in just over two years, in part because of ebbing demand, with some firms reporting concessions and discounts to entice customers to place orders.

The moderation in the price measures fits in with data this month showing a significant slowdown in consumer and producer inflation in October.

The survey's flash manufacturing PMI dropped to 47.6 this month, the lowest reading since May 2020, from 50.4 in October. Economists polled by Reuters had forecast the index at 50.

New orders remained subdued, but price pressures continued to abate as manufacturers signaled the first improvement in supplier performance since October 2019. But the faster lead times were often because of reduced demand for inputs.

Average input prices increased at the softest rate in two years, but factories still faced challenges finding skilled labor. This suggests the slowdown in inflation will be gradual as wages remain sticky.

The survey's flash services sector PMI decreased to 46.1 from 47.8 in October. Services businesses also reported weak demand and a moderation in input prices.