U.S. ISM Services Index (December 2024)

ISM services index shows solid growth to close out 2024, but details were muddy

• The ISM Services index rose 2.0 points to 54.1 in December, slightly ahead of the 53.5 consensus was expecting. However, only nine industries out of eighteen reported growth, five fewer than in October and November.  
• Business activity recovered last month, rising 4.5 points to 58.2, more than offsetting last month's pullback. Conversely, new order growth firmed only slightly (54.2 vs 53.7 last month) and was unable to match October's 57.4 reading. 
• The employment sub-index was virtually unchanged (51.4, -0.1 points) suggesting a modest expansion of payrolls. December was the third consecutive month of payrolls growth and the sixth of the year.     
• The prices paid sub-component jumped sharply (+6.2 points to 64.4) indicating that prices rose at their fastest pace since February of 2023.   

Key Implications

• A bit of a mixed bag to end the year from the ISM services index. The top line figure showed a healthy services sector with business activity posting a solid expansion and payrolls continuing to expand. However, the breadth of the expansion narrowed as only half of the industries reported growth for the month. It will also be worth keeping an eye on whether the jump in the prices paid component is a temporary blip like last January or the start of another march higher on input costs. 
• This report was better than expected, but heading into 2025 uncertainty is the name of the game. The prospect of port disruptions, new tariffs and possible changes to tax policy are all clouding the outlook. For policymakers, monitoring whether any of these factors are leading to sustained inflationary cost pressures will be top of mind. 

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