US Services Index Climbs, Price Gauge Hits Highest Since 2023

(Bloomberg) — Growth at US service providers quickened in December, reflecting stronger business activity that helped push a price measure to the highest since early 2023.

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The Institute for Supply Management’s index of services advanced 2 points to 54.1 last month, the group said Tuesday. Readings above 50 indicate expansion. The measure of prices paid for materials and services rose more than 6 points to 64.4.

The acceleration in the cost gauge comes as Federal Reserve policymakers adopt a more cautious approach to lowering interest rates and amid uncertainty about what kind of tariffs the upcoming Trump administration may slap on imports. Resilient demand, illustrated by the pickup in business activity and stronger orders, adds to concerns that inflation will remain stubborn.

Fifteen of the 18 services industries reported an increase in prices paid in December, while none indicated a decline. One respondent in the finance and insurance sector said that they are moving work offshore to lower costs.

“General optimism expressed across many industries, but tariff concerns elicited the most panelist comments,” said Steve Miller, chair of the Institute for Supply Management Services Business Survey Committee.

Treasury yields rose and the S&P 500 Index fell after traders upped their bets that the Fed will leave rates unchanged this month amid inflation pressures.

“At face value, the latest read points to services deflation essentially stalling from here,” Pantheon Macroeconomics said in a note. However, “big single-month moves often unwind without ever showing up in the inflation numbers. Similarly high readings in the coming months would provide more reason for alarm, but that seems unlikely to us, given that a softer labor market is putting downward pressure on wage costs for most companies.”

New Orders

ISM’s new orders gauge rose 0.5 point to 54.2, in line with the 2024 average. Combined with a three-month high in the measure of business activity, which jumped 4.5 points, the data suggest the economy remained on solid footing at the end of the fourth quarter.

Meantime, the ISM gauge of service employment was little changed at 51.4, suggesting companies are comfortable they can meet demand with existing staffing levels.

What Bloomberg Economics Says…

“Services activity accelerated in December as some businesses made preparations for tariffs anticipated under the incoming Trump administration. Some businesses noted a pull-forward of business demand, while others saw indications that customers were “slowing down.” We expect uncertainty around tariff policy to remain the dominant driver of services activity early this year.”

— Estelle Ou, economist

To read the full note, click here

Separate data showed that job openings rose to a six-month high in November, boosted by a jump in business services while other industries showed more mixed demand for workers. The latest number of vacancies represents a break from an almost three-year downtrend.

The pickup in service sector growth stands in contrast to sluggish manufacturing. Last week, ISM’s factory gauge showed activity contracted in December for a ninth consecutive month.

Producers remain challenged by a strong dollar, potential tariffs and general uncertainty from dockworkers’ contract negotiations that are set to resume Tuesday.

–With assistance from Molly Smith.

(Adds Bloomberg economist’s comment)