Preliminary data released by IHS Markit on Wednesday revealed that U.S. private sector business activity continued to expand strongly during December, albeit at a softer pace than in November.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) came in at 56.5 in December, down slightly from 56.7 in November. Economists had expected the reading to drop to 55.7. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. The headline figure was broadly sustained by the greatest deterioration in vendor performance since data collection began in May 2007 as supplier delivery times were extended following severe raw material shortages and supplier capacity and logistical constraints. At the same time, expansions in output and new orders remained strong.

The Markit flash services purchasing manager's index (PMI) fell to 55.3 in December from 58.4 in the previous month. The rate of growth was the slowest for three months, albeit solid. Economists had expected the reading to decrease to 55.9. The restrictions that were imposed to contain a resurge in Covid-19 cases and softer demand weighed on total services activity.

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 55.7 in December, down from November’s 68-month high of 58.6, pointing to the loss of growth momentum due to rising virus case numbers and re-imposed restrictions in many states, while the post-election uptick and vaccine confidence waned.

Chris Williamson, Chief Business Economist at HIS Markit noted: “Business reported that the US economy lost growth momentum in December, though encouragingly continued to expand at a solid pace. The survey data add to the likelihood of the economy having continued to expand in the fourth quarter, building on the recovery seen in the third quarter.”