Services sector growth remained intact in January for the seventh straight month, according to the latest edition of the Services ISM Report on Business, released today by the Institute for Supply Management (ISM).
The January Services PMI, at 52.3 (a reading of 50 or higher signals growth) was down 1.2% compared to December, growing, at a slower rate, for the seventh consecutive month, and for the 53rd time in the last 56 months, going back to the initial recovery from the pandemic in June 2020.
And the December Services PMI was 0.4% above the 12-month average of 52.4, with October’s 55.8 and June’s 49.2 marking the respective high and low readings over that period.
ISM reported that 14 of the services sectors it tracks saw growth in January, including: Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Mining; Wholesale Trade; Finance & Insurance; Health Care & Social Assistance; Educational Services; Transportation & Warehousing; Retail Trade; Information; Construction; Management of Companies & Support Services; Public Administration; and Utilities. Sectors seeing contraction included: Other Services; Real Estate, Rental & Leasing; and Professional, Scientific & Technical Services.
The report’s subindexes that factor into the NMI largely saw declines from December to January, including:
- Business Activity/Production: at 54.5, down 3.5% from December, growing, at a slower rate, for the 56th consecutive month, with nine sectors reporting an increase in business activity;
- New Orders, at 51.3, decreased 3.1%, growing, at a slower rate, for the seventh consecutive month, following a contraction in June (49.6), which was the first monthly contraction since May 2020, with 10 sectors reporting an increase in new orders;
- Employment, at 52.3, increased 1.0%, growing, at a faster rate, for the fourth consecutive month, with six sectors reporting an increase in January; and
- Supplier Deliveries, at 53.0 (a reading above 50 indicates slower deliveries), slowing, at a faster pace, for the second consecutive month, with nine sectors reporting slower activities
Comments from ISM member panelists included in the report highlighted various trends in the services sector, with tariffs receiving a fair amount of attention.
A Management of Companies & Support Services panelist said that some apprehension exists with stakeholders and suppliers with government changes and potential tariff burdens. And a Professional, Scientific & Technical Services panelist said the threat of tariffs is causing prices to rise, adding that the threat of unstable international markets is resulting in shortages for various materials.
In an interview, Steve Miller, Chair of the ISM Services Business Survey Committee, said that in the way 2024 ended up, for the services sector, coupled with the estimates in the ISM’s Semiannual Report, it sets up a slow-to-flat improvement outlook for 2025. And he added that 2024 marked the first time in three years the average Services PMI saw a stronger second half than first half. What’s more, he said that the 2024 Services PMI average was the lowest it has been since 2009, when it came in at 46.3.
“With the last seven months being in positive territory, I can say that things are on the right trajectory,” he said. “The first half of 2024 was the low point, and we are coming out of that, with commentary from the Semiannual report indicating that revenue will be up 3.9% in 2025, ahead of 3.7% in 2024.”
Looking at pricing in January, which fell 4.0%, to 60.4 (increasing at a slower rate for the 92nd consecutive month), Miller noted that the last time there were two consecutive months above 60 was in February and March 2023, when the readings were at 64.4 and 60.2, respectively.
“Consumer inflation was 6% in February and 5% in March,” he said. “If you look at the curve leading into the rapid inflation, it was very similar to what we have seen over the last 20 months. The government isn’t pumping billions of dollars or trillions of dollars into people’s pockets to go spend, and the interest rate isn’t 2.25% either. I’m hoping the behavior is different regarding inflation, but you know that the two pricing readings in the 60s are certainly something that raised a red flag and says, ‘Maybe we’ll cut interest rates again in June.’”
Addressing China recently placing retaliatory tariffs on certain U.S. products, following the U.S. implementing a 10% tariff on goods made in China imported to the U.S., Miller explained that it will impact various items related to electrical components, which have seen price fluctuations, as well as construction and utilities the most.
Miller stated that wholesale traders are likely to see the biggest impacts from tariff actions, as they are the sector trying to strike deals as distributors on products they are importing—especially for electrical components, steel, and utilities.
