U.S. Business Activity Slows in January, Omicron Possibly to Blame

A new study completed by the data firm IHS Markit revealed that business activity in January slowed to its slowest pace in 18 months, falling to a reading of 50.8. This is the lowest recorded number since July 2020. While there are likely many factors to blame for this new slow growth, analysts are mainly pointing fingers at the ongoing spread of Omicron, the highly contagious coronavirus variant. 

When the Omicron variant was first discovered towards the end of November, analysts weren’t too certain how this contagious (yet less deadly) virus would affect business. While the surge in infections around the country, and around the world, caused thousands of flights to be canceled or delayed because of lack of staff, other businesses appeared to continue on as usual during the December holidays.

Now, however, as the spread of Omicron continues, it appears data has arrived to show just how this surge in infections has caused businesses to struggle. According to this new data, virus infection surges in factories have caused business activity to slow down as workers call out sick from work. Demand, meanwhile, hasn’t really faltered at all and still remains strong. 

In December, the reading was at 57.0. In January, the reading is at about 50.8, a large fall from the month before. On average, any reading above 50 signals economic growth. Therefore, if these readings continue to fall in the next few months, then the readings could begin to register at lower than 50.

Demand still remains strong, which means the Omicron spread is likely to blame for this slowing of activity. However, economists are optimistic that this will work itself out in the next few months, as long as demand continues to remain high. As regulations go away and infections slow down, analysts believe business activity in factories will once again naturally pick up, much like has happened throughout this ongoing pandemic. 

There are many signs that may signal that the spread of Omicron has reached its peak — or will reach its peak soon — and will therefore soon slow down in infections. If this does indeed happen, this will be very beneficial for factories and overall business activity. 

According to this new data, it does appear as if factories in various different industries have all been hit across the board. Not just one industry is currently suffering from a slowing of business activity. 

When it comes to business activity as a whole, the service industry is continuing to struggle. A huge sector of employment, the service industry has long been forced to deal with labor shortages since the pandemic first began. Now, the industry is still dealing with this labor shortage, on top of the spread of the Omicron variant. This has caused their available, employed workers to drastically change from week to week, and has therefore negatively impacted the industry’s overall business activity.

Of course, the constant global supply chain problems do continue to impact many businesses in all industries — and continue to also negatively impact overall business activity.