U.S. manufacturers started the year with a rebound in output and new business growth from the lows seen during December. As a result, the headline seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) picked up to 52.7 in January, from December’s 38-month low of 51.2. The headline PMI signalled a moderate improvement in overall business conditions, but the latest reading was the second-lowest since October 2013 and weaker than the post-crisis trend (54.2). A moderation in manufacturing jobs growth to its lowest for four months was the main factor acting as a drag on the headline index at the start of 2016.

January data signalled a solid upturn in production volumes, with the rate of growth accelerating for the first time since last October. Moreover, the pace of expansion was comfortably above the 26-month low recorded in December. Survey respondents mainly commented on higher output levels in response to positive new business trends and expectations of improving domestic demand over the months ahead.

Volumes of new work strengthened in January, after coming close to stagnation at the end of 2015. The latest increase in new orders was the fastest for three months. However, new export sales continued to rise at only a marginal pace, which manufacturers generally linked to the strong dollar. Companies that reported an overall upturn in new work mostly cited improving domestic economic conditions. The main exception to the wider trend was among manufacturers facing cutbacks in new orders from clients in the oil and gas sector.

The rebound in total new business growth during January contributed to a stabilisation in backlogs of work and an upturn in input buying across the goods-producting sector. However, manufacturers remained cautious about their inventory volumes at the start of 2016, with both finished goods and pre-production stocks falling slightly over the month.

Meanwhile, manufacturers indicated a slight slowdown in job creation across the sector in January. The latest rise in payroll numbers was the weakest since September 2015. Anecdotal evidence suggested that softer overall employment growth reflected a wait-and-see approach to staff recruitment at the start of the year and, in some cases, the need to focus on efforts to reduce costs.

January data signalled a slight reduction in manufacturers’ average cost burdens, which extended the current period of decline to five months. Survey respondents widely commented on lower commodity prices, especially oil and metals. At the same time, factory gate price inflation remained only marginal and below the long-run survey average. Manufacturers noted that competitive pressures and lower input prices had resulted in subdued output charge inflation at the start of 2016.

The eurozone economy saw growth slacken to the weakest for almost a year in January, according to the first business survey reports for 2016. There was better news on the labour market – improved business confidence and a rise in backlogs of uncompleted work meant employment growth held steady at the four-and-a-half-year high seen in December. Firms also enjoyed cost savings due to the oil price decline, passing these on to customers.

The Markit Eurozone PMI® fell from 54.3 in December to 53.5 in January, according to the preliminary ‘flash’ estimate. Although the latest reading signalled a further solid upturn in business activity, the increase was the weakest since February of last year.

The ongoing upturn was led by the service sector, despite its pace of expansion hitting a 12-month low. Growth of manufacturing output meanwhile also faltered slightly to reach an 11-month low, though remained only marginally below the average seen last year.

Further order book growth in both sectors meant backlogs of uncompleted work showed the largest monthly increase for just over four-and-a-half years, prompting firms to continue boosting employment at a rate equal to the four-and-a-half year high seen at the end of 2015.

The service sector created new jobs at a pace beaten only once since 2008, and the manufacturing sector maintained the robust rate of hiring seen late last year.
The improved hiring trend could be linked to an upturn in business confidence, with expectations of future activity levels in the service sector hitting the highest since May 2011.

Firms also benefitted from lower oil prices, which proved a key contributor to average input costs across the two sectors holding steady for the first time in a year. Manufacturers’ input prices showed the second-largest decline since July 2009, while service sector input cost inflation slowed to an 11-month low.

Cost savings allowed firms to cut average prices charged to customers for both goods and services, with the overall drop in output prices the largest recorded for ten months.

German growth slowed to a three-month low, easing across both manufacturing and services, though the single currency area’s largest member state continued to act as a major source of growth for the region as a whole. Although dipping compared to December, the rate of job creation in Germany remained especially strong, and the second-highest seen for just over four years.

France, in contrast, saw business activity grow only modestly, improving only slightly on the near-stalling seen in December. A return to modest growth in the service sector was countered by a stagnation of manufacturing output, which failed to rise for the first time since last August. On a brighter note, employment in France saw the first rise for seven months.

The rest of the region also continued to enjoy strong output and employment growth, though at slightly slower rates of expansion than the peaks seen late last year.