US Services Sector Booms At Fastest Pace Since October 2021, Business Activity Leaps To Over Two-Year Highs

U.S. private sector activity closed out 2024 on a strong note, driven by robust growth in the services sector.

The Services PMI surged to 58.5 in December, beating expectations of 55.8 and up from November’s 56.1 reading, according to data from S&P Global. This marks the sector’s fastest expansion since October 2021 and reflects rising consumer demand and economic resilience.

In stark contrast, the manufacturing sector contracted for a sixth consecutive month. Its PMI slipped to 48.5 from November's 49.7. This reading missed forecasts of 49.8, highlighting persistent challenges for goods-producing businesses. Higher raw material costs, inflation concerns, and tariff-related uncertainties weighed on manufacturers’ sentiment.

Despite the manufacturing slowdown, the broader economy gained momentum. The Composite PMI, which measures activity across both sectors, climbed to 56.6, the sharpest expansion rate in nearly three years. Optimism among firms about future output also soared to its highest level since mid-2022, with employment ticking upward for the first time in five months.

Employment also edged higher for the first time in five months, S&P Global highlighted. Firms expanded workforce numbers amid the brighter outlook

Chris Williamson, chief business economist at S&P Global, noted: "Business is booming in the U.S. services economy, where output is growing at the sharpest rate since the reopening of the economy from COVID lockdowns in 2021."

Market Reaction: Stocks Surge, Dollar Steady

Wall Street welcomed the robust services data, with the S&P 500 — tracked by the SPDR S&P 500 ETF SPY — gaining 0.4% and the Nasdaq 100 (via Invesco QQQ ETF) adding 0.9% to hit fresh all-time highs.

Treasury yields remained flat, with the 10-year yield steady at 4.38%, while the dollar, as measured by the Invesco DB USD Index Bullish Fund ETF UUP, traded sideways.

The divergence between a thriving services sector and struggling manufacturing highlights the evolving dynamics of the U.S. economy heading into 2025. While inflationary pressures remain a concern in the goods-producing sector, the cooling of cost growth in services offers a glimmer of hope for easing overall inflation.

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