- December’s flash PMIs backed the idea that the Omicron variant has caused a significant slowdown in services activity, particularly in consumer-facing sectors.
- But it was not all bad news. The survey reported an easing in imbalances between supply and demand in both services and manufacturing, with the services sector reporting smaller rises in costs and prices. However, there is a significant risk that the rise in COVID-19 cases in recent days causes renewed supply issues.
Martin Beck, chief economic advisor to the EY ITEM Club, says:
“December’s flash IHS Markit/CIPS survey reported weaker headline balances following the discovery of the Omicron variant. The manufacturing PMI fell from 58.1 in November to 57.6 in December. The fall in the services balance was much greater, from 58.5 to 53.2, reflecting the idea that Omicron has induced greater consumer caution, weighing on activity in social consumption sectors. Though there was a modest acceleration in manufacturing output growth, the services weakness caused the composite PMI to fall to a 10-month low of 53.2.
“The headline balances remained in expansionary territory which offers some cause for optimism, although the relationship between the PMIs and official output data has been poor throughout the pandemic. The EY ITEM Club suspects that this is because the surveys effectively track sentiment, even though they ask for responses to be based on more quantitative evidence.
“December’s flash survey was not all bad news. Manufacturers reported that supply chain bottlenecks had begun to stabilise. And businesses in the services sector reported weaker rises in costs and prices, reflecting a similar easing in imbalances between supply and demand. But whether this pattern continues remains to be seen, with the rise in COVID-19 cases in recent days increasing the risk of renewed labour shortages.”