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Business Activity Stabilizes But Still Shaken by Covid

It was a month of increased optimism over the beginning of vaccine approvals and inoculations, but December also brought fresh lockdowns amid surges in Covid cases.

The dichotomous reactions and results followed in the commercial sector, according to new data analysis.

United States

U.S. private sector businesses signaled a soft but steady expansion in output in December.

The IHS Markit Flash U.S. Composite Purchasing Manager’s (PMI) Output Index fell to 55.7 in December, down from November’s 68-month high of 58.6. The loss of momentum was most notable in the service sector, where additional restrictions and softer demand impacted consumer-facing business once again. It also followed rising virus case numbers and re-imposed restrictions in many states.

On the positive side, new orders continued to rise to one of the fastest rates since February 2019. Temporary shutdowns and client uncertainty weighed on the upturn, however, IHS noted.

While domestic demand continued to increase among manufacturing and service sector firms, companies registered a fall in new export sales, according to the report. The decrease was the first since July, as renewed lockdowns in key export markets dampened demand from foreign clients.

As was seen during November, severe supply chain disruptions remained evident in December, with delays more prevalent than at any time since comparable data was available in 2007. As a result of demand rising, but supply worsening, firms reported unprecedented supplier price rises, exacerbated by a surge in the price of personal protective equipment (PPE).

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Although manufacturers raised their selling prices at the fastest rate since April 2011, seeking to pass higher costs on to customers where possible, service providers recorded a softer pace of charge inflation amid continual efforts to drive sales, IHS said. The outlook for output over the coming year remained upbeat, but was tempered by renewed uncertainty regarding the pandemic and surging costs.

“The survey data adds to the likelihood of the economy having continued to expand in the fourth quarter, building on the recovery seen in the third quarter,” Chris Williamson, chief business economist at IHS Markit, said. “However, while November had seen business buoyed by increased activity around Thanksgiving, as well as a surge in business confidence following the Presidential election and encouraging vaccine news, December has seen companies rein in their expectations given the higher virus case numbers and tougher lockdown stances adopted in some states.”

“While vaccine developments mean some of the cloud caused by the pandemic should lift as we head through 2021, rising case numbers continue to darken the near-term outlook,” Williamson added. “Resurgent virus numbers were cited as a key factor behind a pull-back in hiring, hinting that the labor market has cooled amid growing caution among employers. Other costs have meanwhile risen, linked to rising raw material prices and supply shortages caused by the pandemic, acting as a further strain on businesses.”

United Kingdom

In the U.K., December data highlighted a marginal expansion of private sector output, driven by another solid increase in manufacturing production, according to the IHS Markit/CIPS (Chartered Institute of Procurement & Supply) Flash report.

The latest survey also indicated severe pressure on manufacturing supply chains, which was overwhelmingly linked to freight delays following congestion at U.K. ports. Around 45 percent of the survey panel reported longer wait times from suppliers. The lengthening of lead times in December was the third-steepest since the survey began in 1992, exceeded only by those seen amid COVID-19 shutdowns in April and May.

“Job shedding was reduced this month to the slowest rate since the pandemic began, as optimism was maintained across manufacturing and services sectors about operating conditions in 12 months’ time,” Duncan Brock, group director at CIPS, said. “However, in the near-term supply chain managers identified some serious obstacles that could impede further progress and pull the sectors into recession again. Though manufacturing was buoyed up by Brexit panic buying and saw the fastest rise in purchasing since August 2013, delivery times increased at the third highest rate since 1992, which meant many essential materials were not getting through.”


Eurozone business activity came close to stabilizing in December, as stronger manufacturing output growth helped to counter a drop in service sector activity.

As prospects brightened amid recent news on vaccine developments, output expectations jumped to a 32-month high, The IHS Markit Eurozone Composite PMI rose to 49.8 in December from 45.3.

Inflows of new orders rose marginally and for the first time since September, boosted by an increased rate of growth of new orders in the manufacturing sector. Average rates charged for goods and services fell at the slowest rate since prices began falling back in March, linked in some cases to strengthening demand and improved pricing power, but also due to increased cost pressures in the manufacturing sector, the report said.

“The eurozone economy is faring better than expected in December, the flash composite PMI coming in at 49.8, ahead of consensus expectations of 45.8,” Williamson said. “The data hints at the economy close to stabilizing after having plunged back into a severe decline in November amid renewed COVID-19 lockdown measures. The fourth quarter downturn consequently looks far less steep than the hit from the pandemic seen earlier in the year, though the picture is very mixed by sector.”

“While vaccines mean there’s light at the end of the tunnel, the near-term still looks very challenging for many consumer-facing companies,” he added. “Although manufacturing is reporting strong growth, fueled by rising exports and a booming performance from Germany in particular, the service sector remains in decline amid ongoing social distancing restrictions.”