US Services Growth Slows In January As Tariff Concerns Mount

The U.S. services sector continued to grow in January 2025, though at a slower pace than expected, highlighting uncertainty as businesses brace for potential tariff impacts.

The latest survey from the Institute for Supply Management revealed that the Services PMI fell to 52.8% in January, down from 54% in December, and below the 54.3% forecast by economists, as per TradingEconomics. While expansion persists, the slowdown suggests businesses are feeling pressure from rising costs and trade policy uncertainties.

Despite the overall softness, January marked the second consecutive month in which all four key subindexes—Business Activity, New Orders, Employment, and Supplier Deliveries—remained in expansion territory.

Yet, concerns over tariffs weighed on sentiment.

"Many panelists also mentioned preparations or concerns related to potential U.S. government tariff actions," said Steve Miller, chair of ISM's survey committee.

Industry respondents echoed these worries, with contacts in professional, scientific and technical Services indicating that the threat of tariffs is leading to higher price pressures. Respondents in real estate, rental, and leasing flagged concerns about the cost of materials and project work going forward.

Weather-related disruptions also emerged as a possible factor affecting business activity and production levels, according to the survey.

Key ISM Services PMI Data – January 2025

Index Series	Jan 2025	Dec 2024	Change	Direction	Rate of Change
Services PMI	52.8	54.0	-1.2	Growing	Slower
Business Activity/Production	54.5	58.0	-3.5	Growing	Slower
New Orders	51.3	54.4	-3.1	Growing	Slower
Employment	52.3	51.3	+1.0	Growing	Faster
Supplier Deliveries	53.0	52.5	+0.5	Slowing	Faster
Inventories	47.5	49.4	-1.9	Contracting	Faster
Prices	60.4	64.4	-4.0	Increasing	Slower
Backlog of Orders	44.8	44.3	+0.5	Contracting	Slower
New Export Orders	52.0	50.1	+1.9	Growing	Faster

Labor Market Remains Strong In Services Sector

The job market in service-related industries remained resilient, with private employers adding 190,000 jobs in January, according to the ADP National Employment Report.

In contrast, goods-producing industries shed 6,000 jobs, signaling a stark divide between the two sectors.

Within services, trade, transportation, and utilities led hiring with 56,000 new jobs, while leisure and hospitality closely followed, adding 54,000 positions.

This data underscores the continued strength of consumer-driven industries, even amid broader economic uncertainty.

“Consumer-facing industries drove hiring, while job growth was weaker in business services and production,” said ADP chief economist Nela Richardson.

Market Reactions: Stocks Fall, Gold Shatters Records

Stocks negatively reacted following the publications of the ISM Services PMI report, with the S&P 500 index – tracked by the SPDR S&P 500 ETF Trust SPY – further sliding into negative territory, down 0.5% by 10:20 a.m. ET.

Tech stocks – tracked by the Invesco QQQ Trust QQQ – were 0.6% lower, as Alphabet Inc. GOOG GOOGL fell 8.4%, and Advanced Micro Devices Inc. AMD was down 10%, weighing on tech-heavy indices.

Outside of Wall Street, gold continued to shine, further extending its all-time highs to $2,875 per ounce. The SPDR Gold Trust GLD has now rallied 8.7% year-to-date, with the bullion marking the strongest start to the year since 1980.

Treasury yields fell, particularly on longer-dated maturities, with yields on the 30-year Treasury down 8 basis points to 4.72%. The iShares 20+ Year Treasury Bond ETF TLT rallied 1.4%, eyeing its third straight session of gains.

Other than weaker investor sentiment on risky assets, Treasuries benefited from safe-haven demand after President Donald Trump escalated tariff disputes with China and proposed a U.S.-led redevelopment plan for Gaza.

Bitcoin BTC/USD was flat at $98,400.

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