WASHINGTON (Reuters] – U.S. businesses grew at their slowest pace for 18 months in January due to a winter surge COVID-19 infected workers. But, there was still strong demand.

IHS Markit, a data firm, said Monday that its flash U.S. CompositePMI Output Index (which tracks manufacturing and service sectors) fell to 50.8 from 57.0 in December. This was the lowest reading since July 2020. If the reading is above 50, it indicates that there has been growth in the private sector.

From 56.6 in December, the flash composite orders index dropped to 55.0.

Chris Williamson (IHS Markit chief business economist) stated that Omicron has had a significant impact on output more than it has on demand. He also noted that Omicron’s strong growth in new business flows suggests that Omicron will have a positive effect on growth.

According to a Reuters analysis, the United States reports an average 738,047 coronavirus infection per day. Most infections are caused by Omicron, a highly contagious variant.

This week, government data showed that 8.8 million people were not able to go work between Dec. 29, and Jan. 10, due to coronavirus related reasons. Businesses are also reporting that they have suffered severe effects from the pandemic.

This has helped to lift first-time unemployment benefit applications to an all-time high of three months. However, there are indications that Omicron is cresting. Business activity could pick up.

This was a general slowdown in activity.

According to IHS Markit, the flash services sector PMI fell to 50.9. This is also the lowest reading since July 2020 (57.6 in December). Reuters economists had predicted a reading this month of 55.0 in the services sector. It accounts for nearly two-thirds U.S. economic activities.

According to the service industry, Omicron and labor shortages were limiting growth. But, the demand for services was strong, and businesses were able hire more employees to reduce backlog.

The pace of price growth in inputs for services businesses has slowed slightly, but it was still quite strong. These results support the view that inflation is nearing or already has reached its peak.

Omicron’s restrained manufacturing activity in this month has caused worsening supply chain issues. From 57.7 in December, the flash manufacturing PMI was at a fifteen-month low of 55.0. The sector accounts for 11.9% and the economy’s index fell to 56.7 as predicted by economists.

IHS Markit noted that there was “a high turnover in staff” and reported the absence of replacements for voluntary quitters.

Factory goods orders increased at the slowest pace since July 2020. The cost of inputs has slowed slightly, but prices remain very high.