US Service Providers See Boost in December, Driven by Strong Business Activity
The US service sector experienced a significant uptick in December, driven by robust business activity and a surge in prices paid for materials and services. According to the Institute for Supply Management’s (ISM) latest report, the services index climbed 2 points to 54.1, indicating expansion.
Price Measure Hits Highest Level Since Early 2023
The measure of prices paid for materials and services jumped more than 6 points to 64.4, the highest level since early 2023. This acceleration in the cost gauge has sparked concerns about inflation, particularly as Federal Reserve policymakers adopt a more cautious approach to lowering interest rates.
Tariff Uncertainty and Resilient Demand Fuel Inflation Concerns
Fifteen of the 18 services industries reported an increase in prices paid in December, with none indicating a decline. The pickup in business activity and stronger orders have added to concerns that inflation will remain stubborn. Moreover, uncertainty surrounding tariffs has led some businesses to prepare for potential changes, while others have noted a slowdown in customer demand.
New Orders and Business Activity on the Rise
ISM’s new orders gauge rose 0.5 point to 54.2, in line with the 2024 average. Meanwhile, the measure of business activity jumped 4.5 points, suggesting the economy remained on solid footing at the end of the fourth quarter.
Service Employment Remains Steady
The ISM gauge of service employment was little changed at 51.4, indicating that companies are comfortable meeting demand with existing staffing levels.
Economist Insights
According to Estelle Ou, economist at Bloomberg Economics, “Services activity accelerated in December as some businesses made preparations for tariffs anticipated under the incoming administration. We expect uncertainty around tariff policy to remain the dominant driver of services activity early this year.”
Job Openings Reach Six-Month High
Separate data showed that job openings rose to a six-month high in November, driven by a jump in business services. This marks a break from an almost three-year downtrend.
Contrast to Sluggish Manufacturing
The pickup in service sector growth stands in contrast to sluggish manufacturing, which has contracted for nine consecutive months. Producers continue to face challenges from a strong dollar, potential tariffs, and general uncertainty from dockworkers’ contract negotiations.
Leave a Reply