The S&P Global US Composite Purchasing Managers' Index preliminary reading came in at 53.0 in December compared to 54.2 in November, and 54.6 in October, as the activity growth rate slowed to the weakest since June, along with the smallest rise in new business inflows for 20 months.

At 51.8, down from 52.2 in November, the US Manufacturing PMI points to an improvement in factory business conditions for the fifth straight month, although by the weakest degree over this period.

The US Services PMI Business Activity Index recorded 52.9 in December, down from 54.1 in November, and below expectations of 54.8 in the Econoday survey of forecasters.

Demand for services grew only modestly, rising at a sharply reduced rate, and new orders for goods fell for the first time in a year, the report said.

There was also a slight pull-back in business sentiment for the year ahead, which contributed to a softening of employment growth to only a marginal level.

Jobs growth rose to the highest for four months in manufacturing, but service sector employment came almost stalled, with the smallest net gain to payrolls since April. Job growth was commonly constrained by concerns over costs, lacklustre demand and uncertainty over the economic outlook, the report said. Some companies also continued to report labor shortages.

Meanwhile, price pressures intensified noticeably, with average selling prices climbing at one of the steepest rates since mid-2022. Tariffs as well as rising labor costs blamed for the increases.

Although manufacturers reported slightly slower inflation, the increase in input prices was historically elevated. In contrast, services cost inflation was the steepest in over three years, S&P said. Increased costs again fed through to higher selling prices, with the overall rate of inflation rising to the steepest since July and therefore amongst the greatest since the pandemic related price-surge of 2022.

Looking ahead, the report attributed the dip in confidence to price increases, uncertainty and reduced customer spending, often in turn linked to tariffs and other government policies.

Pessimism was countered by hopes of greater policy support, including lower interest rates and more government fiscal stimulus, alongside plans for new product development and greater investment in sales and marketing, it said.

Manufacturing is seen at 52.0 versus 52.2 and services at 53.9 versus 54.1.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector output by combining information obtained from surveys of around 1,000 manufacturing and service sector companies. The flash data are released around 10 days ahead of the final report and are typically based upon around 85 percent of the full survey sample. The report tracks changes in variables such as new orders, stock levels, employment and prices across both manufacturing and services. Production is also tracked, defined as"production" for manufacturing and"output" for services. Results are synthesized into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) output versus the previous month and the closer to 100 (zero) the faster output is growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The data are produced by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.