Renewed weakness period in US economy seen at 2022 start: IHS Markit

Growth should pick up again as the omicron wave fades, but the degree to which growth can accelerate is uncertain given various headwinds to the economy, London-based IHS Markit said in a note.

Barring the 33.8 per cent surge seen in Q3 2020 as the economy opened from the initial pandemic lockdowns, this was the fastest rate of expansion since 2000. The strong end to 2021 also closes off the United States’ best year since 1984 and lifts GDP by 3.1 per cent above its level reached just prior to the pandemic.

The upturn was broad-based, with solid expansions of both consumer spending and business investment. Exports and inventories also contributed to the impressive performance.

The growth spurt has already faded, however, according to flash purchasing managers’ index (PMI) survey data from IHS Markit, which slumped lower in January amid the omicron wave. Sharply rising COVID-19 infections led to a near-stalling of the economy in January according to the survey responses, with rates of expansion close to stagnation in both manufacturing and services.

Early official data on durable goods orders hint at a similar slowdown, with orders down 0.9 per cent in December.

Business activity and consumer spending in the services sector should revive as virus case numbers recede in coming weeks, IHS Markit noted.

More uncertain is the path of manufacturing, where still-widespread supply shortages and staff availability issues continue to curb production in January, and look set to remain drags for much of the rest of 2022.

However, coming months could also see additional headwinds, in the form of rising prices and a delayed impact of the tightening of fiscal policy referred to above, as well as rising interest rates. The Federal Reserve is taking an increasingly hawkish stance as to the path of monetary policy tightening for 2022 in the face of a recent surge in inflation, which has accelerated to 7 per cent.

While signs of policymakers grappling with inflation may help steady nerves about inflation getting out of control, it remains to be seen whether financial markets and personal incomes will be adversely affected. Recent survey data have already indicated than investment professionals have become risk averse in 2022, IHS Markit added.

ALCHEMPro News Desk (DS)