Economy Gained Momentum in February Despite Inflation Worries

Tuesday, February 22, 2022

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(The Wall Street Journal)

U.S. economic growth picked up this month but inflation pressures increased as the Omicron wave of Covid-19 ebbed and Americans resumed dining out and traveling, according to surveys of purchasing managers.

Private data firm IHS Markit said on Feb.22 that its composite Purchasing Managers Index for the U.S. rose to a two-month high of 56.0 in February from 51.1 in January. A reading above 50 indicates growth, while a level below 50 signals contraction.

Price pressures intensified this month, according to the firm and other reports released Tuesday.

Worries about inflation hurt U.S. consumer sentiment in February, according to a separate report from the Conference Board, a private research group. Its index of consumer confidence fell for the second month in a row in February, to 110.5 from 111.1, the group said Tuesday.

The share of consumers planning to purchase homes, automobiles, major appliances, and vacations over the next six months all fell, the Conference Board said, adding “confidence and consumer spending will continue to face headwinds from rising prices in the coming months.”

Home-price growth surged to a record in 2021, according to the S&P CoreLogic Case-Shiller National Home Price Index, as low mortgage-interest rates prompted buyers to compete fiercely for a limited number of homes for sale.

The Labor Department’s consumer-price index—which measures what consumers pay for goods and services—rose in January by 7.5% from a year earlier, the fastest pace since February 1982.

Companies reported a pickup in demand in February after pandemic-related disruptions and employee absenteeism in the prior two months, and manufacturers reported an easing of supply bottlenecks.

Services providers led the rebound, but manufacturers also reported stronger growth in output, the firm said.

European readings also showed accelerated growth driven by services providers. In the eurozone, the PMI rose to 55.8 in February from 52.3 in January, the fastest rate of growth since September, IHS reported Monday. In the U.K., the index jumped to 60.2 in February from 54.2 in January.

Businesses on both continents reported that price pressures intensified due to higher costs for raw materials, transportation, energy, and wages.

Still, February’s pickup in service-sector activity reflects the fact that consumers are in a strong position despite higher inflation and an expected rise in interest rates this year, said Abbey Omodunbi, senior economist at the PNC Financial Services Group.

A strong labor market, robust household balance sheets and rises in equity and housing valuations mean “household wealth is much stronger than it was pre-pandemic,” he said, adding that consumer spending is likely to remain very solid this year despite an expected rise in short-term interest rates.

 

Category: Economic News, US News, COVID-19