By Xavier Fontdegloria

Business activity in the U.S. private sector continued to grow in January as companies in both the manufacturing and services sectors saw improvements in new business even as new Covid-19 infections remain high across the country, preliminary data from IHS Markit showed Friday.

The flash reading for the U.S. Composite Output Index came in at 58.0 in January, up from the 55.3 registered in December. The reading signals that expansion of activity quickened to the second-fastest pace since March 2015, IHS Markit said.

The indicator is based on data from the firm's PMI surveys for manufacturing and services sectors. In January, both the manufacturing and services sector remained in expansion territory, with the rate of expansion accelerating compared with that of December, data showed.

"U.S. businesses reported a strong start to 2021, buoyed by hopes that vaccine developments will mean the worst of the pandemic is behind us, and that the new administration will provide a stable and supportive environment for stronger economic growth," said Chris Williamson, chief business economist at IHS Markit.

Manufacturers and service providers alike registered quicker increases in business activity in January, the report said.

IHS Markit's flash U.S. Services Business Activity Index was 57.5 in January, up from 54.8 in December. Economists polled by Dow Jones expected the indicator to come in at a lower 53.5.

The rise in output was linked to another monthly increase in customer demand, respondents said, although the pace of new business growth softened as restrictions placed on firms due to the Covid-19 pandemic dampened demand.

As for the manufacturing sector, factory activity remained strong and the PMI held well above the break-even level.

IHS Markit Manufacturing PMI stood at 59.1 in January, up from 57.1 in December and a series record high. Economists expected the U.S. Manufacturing PMI flash reading to remain broadly stable at 57.0.

New orders rose markedly due to stronger demand from new and existing customers, the report said. Meanwhile, significant supply chain delays, raw material shortages and evidence of stockpiling at goods producers pushed input prices up, IHS Markit said.

"Capacity constraints are biting amid the growth spurt. Not only have the last two months seen supply shortages develop at a pace not previously seen in the survey's history, but prices have also risen due to the imbalance of supply and demand," Mr. Williamson said.

Backlogs of work stagnated across the private sector as the rate of job creation eased to only a modest pace. Goods producers indicated the quickest increase in employment for two years but challenging demand conditions in the service sector weighed on overall hiring, the report said.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

January 22, 2021 10:19 ET (15:19 GMT)