S&P Global's PMI surveys, based on data provided by over 30,000 companies worldwide, brought encouraging news of a stabilization of the global economy in January, calming recession worries in the U.S. and Europe. Future output expectations, meanwhile, surged higher in the anticipation of improved global growth following the relaxation of COVID-19 restrictions in China, buoyed also by signs that inflation has peaked.

While further easing of supply chain delays bodes well for inflation in the coming months, a sustained tightness of the labor market poses some upside risks to the inflation outlook.

Global economy shows signs of stabilizing

Global recession worries were allayed as the encouraging signals from earlier flash releases were confirmed by the final PMI survey readings in January. The global PMI's headline output index rose for a second month running to reach a six-month high of 49.8. The index points to a near-stabilization of business activity after a downturn in the fourth quarter, which had been the steepest recorded since the Great Recession, excluding early pandemic lockdown months in 2020. In fact, model-based comparisons of the PMI with GDP suggest that January's survey index upturn is consistent with marginal growth in global GDP.

The most encouraging signals came from Europe, where the eurozone edged back into growth territory, albeit only marginally, for the first time in seven months and the U.K. reported only a modest decline. The data suggests that recessions could be avoided in Europe.

The S&P Global PMI for the U.S. pointed to a sustained robust downturn, raising the possibility of GDP falling in the first quarter. The rate of contraction moderated, however, to likewise encourage views that any recession may not necessarily be as deep as previously feared.

Business activity in Japan joined the eurozone in expansion territory, with output growing for the first time in three months.

India continued to lead the major emerging markets with its rate of expansion cooling but remaining among the highest seen over the past decade. Growth was also reported in mainland China, with business activity rising for the first time since last August, attributed to reviving spending amid the reopening of the economy.

Confidence rises as China reopens

In addition to indicating that current business conditions have steadied, the survey data also suggests the outlook has improved. The global PMI future output index, which monitors companies' expectations of their own business activity levels in the coming year, jumped to an eight-month high. The improvement had the noteworthy effect of pulling confidence above its long-run average for the first time since last May and is consistent with activity growth accelerating as we head through the first quarter.

Sentiment was lifted in the U.S. and Europe partly by the anticipated improvement in global demand and supply from the relaxation of COVID-19 restrictions in mainland China. This also pushed future output expectations in China itself to the joint-highest for a decade, matched by a similar high in the Hong Kong special administrative region.

Commodity price pressures cool as supply chains heal and demand falls

The business mood was also lifted globally by recent signs that the inflation spike and supply chain squeeze from the pandemic have peaked.

The latest PMI surveys showed the number of reported supply chain delays falling worldwide for a sixth successive month, resulting in the fewest delays reported since January 2020.

At the same time, falling demand for goods is exerting downward pressure on prices. The global manufacturing PMI survey showed new orders for goods falling for a seventh straight month in January. Although the rate of decline moderated, it was still among the steepest seen since the Great Recession.

This combination of fewer supply chain delays and falling demand points to weaker industrial price inflation ahead, with the surveys already showing manufacturing input cost inflation weakening to the lowest for over two years in recent months.

Service sector cost growth ticks higher

The inflation picture was mixed, with the surveys showing an uptick in service sector input cost inflation in January, albeit still running at the second-lowest for two years, which in part reflected rising labor costs. Average selling prices for services edged down to a 22-month low, reflecting a broad-based inability to fully pass costs on to customers amid weak demand.

Global jobs growth close to stalled, but skill shortages persist

The January surveys also brought mixed messages on the labor market. Overall, job growth remained near-stalled globally for a third month running, almost stagnating in both manufacturing and services. This represents a marked contrast to the decade-high job growth seen in the first half of 2022. Of the world's major economies, the eurozone recorded noteworthy job gains in January.

Faced with falling demand, higher energy costs and uncertainty over the future, companies reported a reticence to add to workforce numbers. Employment growth was also constrained by staff shortages, reflecting the historical tightness of the labor markets in many economies, notably in the U.S. and parts of Europe.

The number of companies worldwide reporting that business activity was constrained by a lack of labor rose in January to a level only previously exceeded during a three-month period in late 2021 and early 2022. This degree of constraint underscores the need for governments to seek ways to boost labor force participation and is a worrying sign that wage growth could prove sticky in the months ahead as companies seek to fill vacancies.

Purchasing Managers' Index data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed and to uncover opportunities.

Data and insights for this article were compiled by Chris Williamson, chief business economist for S&P Global Market Intelligence.