US Service Sector Expands Beyond Expectations In January, Signals Robust Economic Resilience

The U.S. services sector expanded more than anticipated in January, underscoring the sector’s robust performance even amidst elevated borrowing costs and rising geopolitical tensions.

The Institute for Supply Management (ISM) said Monday that its Services Purchasing Managers’ Index (PMI) leaped from 50.6 in December to 53.4 in January , surpassing economist predictions of 52. This marks the highest level since September 2023 and continues a 13-month streak of expansion, highlighting the sector’s enduring strength.

Last week, the ISM Manufacturing PMI for January also exceeded expectations, signaling robust economic resilience.

Key Highlights From ISM Services PMI Report

• The January ISM Services PMI of 53.4 indicates a faster expansion pace, the most significant since September 2023.
• Growth was driven by increased rates in New Orders, Employment and Supplier Deliveries indexes.
• Health Care & Social Assistance led the industry growth, followed by Agriculture, Forestry, Fishing & Hunting and Professional, Scientific & Technical Services.

“The jump in January’s growth rate is due to the accelerated growth of the New Orders, Employment, and Supplier Deliveries indexes. The business community remains optimistic, buoyed by the potential for interest rate cuts, though cautious due to inflation and ongoing geopolitical tensions,” said Anthony Nieves, chair of the ISM Services Business Survey Committee.

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Deeper Dive Into The Data

Index	Series Index Jan	Series Index Dec	Percent Point Change	Direction	Rate of Change	Trend (months)
Services PMI	53.4	50.5	+2.9	Growing	Faster	13
Business Activity/ Production	55.8	55.8	0.0	Growing	Same	44
New Orders	55.0	52.8	+2.2	Growing	Faster	13
Employment	50.5	43.8	+6.7	Growing	From Contracting	1
Supplier Deliveries	52.4	49.5	+2.9	Slowing	From Faster	1
Inventories	49.1	49.6	-0.5	Contracting	Faster	2
Prices	64.0	56.7	+7.3	Increasing	Faster	80
Backlog of Orders	51.4	49.4	+2.0	Growing	From Contracting	1
New Export Orders	56.1	50.4	+5.7	Growing	Faster	3
Imports	59.9	49.3	+10.6	Growing	From Contracting	1
Inventory Sentiment	59.3	55.3	+4.0	Too High	Faster	9

• Business Activity/Production remained stable at 55.8, indicating consistent growth.
• New Orders saw a significant rise to 55.0 from 52.8, suggesting increased demand.
• Employment index jumped to 50.5 from 43.8, moving from contraction to growth.
• Supplier Deliveries slowed at a faster pace, indicating supply chain pressures.
• Prices increased sharply to 64.0 from 56.7, reflecting rising cost pressures.

S&P Global U.S. Composite PMI Insights

Simultaneously, the S&P Global U.S. Composite PMI for January echoed this positive sentiment, registering at 52.0, indicating a strong start to 2024 for the U.S. services economy. This expansion marks the fastest pace of business activity growth since June 2023.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “The U.S. service sector has hit a sweet spot at the start of the year, with accelerated output and demand growth and a notable cooling in price pressures.”

According to the expert, business optimism about growth prospects has risen, likely bolstering further wage growth in the upcoming future. Moreover, investment in advertising and new service lines are key factors driving this positive outlook, despite challenges such as labor shortages.

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