LIVE MARKETS-The good, the bad, and the ugly: Flash PMI, UMich, and a late-to-the-party LEI

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THE GOOD, THE BAD, AND THE UGLY: FLASH PMI, UMICH, AND A LATE-TO-THE-PARTY LEI

Investors were treated to a trio of indicators on Friday, one of which was delayed due to technical difficulties.

First, U.S. business expansion gained a teensy bit of momentum this month.

S&P Global's advance "Flash" January purchasing managers' indexes (PMI) showed the manufacturing side USMPMP=ECI strengthening by 0.1 point to 51.9, just a tad south of the 52.0 consensus.

The larger services sector USMPSP=ECI maintained its velocity, repeating December's 52.5 print.

In aggregate, the composite measure USPMCF=ECI added a meager 0.1 point to land at 52.8.

All three metrics remain comfortably north of 50, the PMI dividing line between contraction and expansion.

But beneath the headline, prices paid - an inflation predictor - remain elevated, business optimism has faded a tad, and the new orders element, while up from December's 20-month low, was the second weakest reading in the last nine months, according to the release.

"The flash PMI brought news of sustained economic growth at the start of the year, but there are further signs that the rate of expansion has cooled over the turn of the new year," writes Chris Williamson, chief business economist at S&P Global. "A worryingly subdued rate of new business growth across both manufacturing and services adds further to signs that first quarter growth could disappoint."

Separately, the University of Michigan's (UMich) second and final take on January consumer sentiment USUMSF=ECI surprised to the upside.

Economists predicted the topline would stand pat at an even 54.0, but UMich upwardly revised its initial take by a significant 2.4 points to land at 56.4.

Survey participants' assessment of present conditions improved by 5.7%, while near-term expectations notched a 3.6% improvement.

The improvement "was broad based, seen across the income distribution, educational attainment, older and younger consumers, and Republicans and Democrats alike," says Joanne Hsu, UMich's director of consumer surveys. "However, national sentiment remains more than 20% below a year ago, as consumers continue to report pressures on their purchasing power stemming from high prices and the prospect of weakening labor markets."

Underscoring Hsu's point, the graphic below shows the consumer outlook continues to wallow well below the post-COVID plunge.

The closely scrutinized inflation expectations element showed respondents expect annual price growth of 4.0% a year from now, 1.2 percentage points hotter than Thursday's core PCE reading of 2.8%.

It's also 70 basis points hotter than the 3.3% year-ahead price growth expectations in January 2025.

Longer-term, consumers expect annual inflation of 3.3% five years from now, 10 bps hotter than UMich's final December number, but 20 bps cooler than the year-ago reading.

Finally, the Conference Board, which was due to release two months of its Leading Economic index (LEI) USLEAD=ECI at 10 EST, instead unveiled the report an hour late due to a network outage.

The LEI posted 0.3% declines in both October and November, weaker than the 0.2% dip analysts expected.

The index is an amalgamation of ten forward-looking economic indicators, including initial jobless claims, ISM new orders, building permits, yield spreads and S&P 500 price performance.

"The US LEI fell again in both October and November,” says Justyna Zabinska-La Monica, CB's senior manager of Business Cycle Indicators. “Throughout 2025, weak consumers expectations led the decline in the LEI, followed by new orders."

(Stephen Culp)

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