U.S. ISM Services Index (January 2025)

ISM services index falls to start 2025, but continues to signal growth 

• The ISM Services index fell 1.2 points to 52.8 in January, slightly short of the 54.0 consensus was expecting. However, fourteen industries out of eighteen reported growth, up from nine in December and back in line with November.  
• Business activity tumbled last month, falling 3.5 points to 54.5, more than giving back last month's improvement and registering its lowest level since August. New order growth also slowed (51.3 vs. 54.4 in December) and, apart from a contraction in June 2024, registering its weakest reading in two years.   
• The employment sub-index ticked up 52.3, suggesting that payrolls continued to expand in January. 
• The prices paid sub-component fell sharply (-4.0 points to 60.4). However, when excluding the jump last month, the index is at its highest level since January of last year, suggesting growing price pressures.   

Key Implications

• Some give back in the services sector to start 2025, but not a bad report on the whole. The share of industries expanding rose last month and employment continued to tick higher. The waning momentum in new demand is a fly in the ointment, but the report cited poor weather conditions as impacting business in January, so there may be room for recovery next month. 
• The outlook for the rest of the year is clouded by uncertainty. Momentum in the services sector has carried through to the start of 2025, but the prospect of tariffs on inputs continues to loom. Another leg higher in input prices, coupled with a still tight labor market could work to sustain inflationary pressure. All eyes now turn to Friday's update on the labor market. 

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