Prime Highlights:
The ISM Services Index for December rose to 54.1%, a 2-percentage point increase from November, surpassing expectations of 53.4%.
The Prices Index surged to 64.4%, marking a 6.2-point rise and the highest level since February 2023, reflecting growing concerns over tariffs and inflation.
Many businesses expressed concerns about the potential impact of tariffs on costs and purchasing decisions, particularly following the incoming administration’s policies.
Key Background:
The U.S. services industry experienced an uptick in activity in December, as reflected in the latest Institute for Supply Management (ISM) Services Index. The index posted a reading of 54.1%, up 2 percentage points from November and surpassing the Dow Jones consensus forecast of 53.4%. This strong reading indicates broad optimism within the sector, with many businesses expecting growth in the coming months.
However, a notable concern was raised regarding inflationary pressures. The prices index saw a significant increase, rising 6.2 points to 64.4%, marking its highest level since February 2023. This sharp jump, reflecting more than a 10% rise, was driven by fears that tariffs could exacerbate inflationary pressures, with businesses bracing for the impact of potential tariff hikes following the upcoming change in administration.
ISM’s Steve Miller highlighted that while optimism remained prevalent across many industries, the issue of tariffs dominated concerns. He noted that businesses were becoming increasingly apprehensive about how these tariffs could affect purchasing decisions and overall pricing structures. Many respondents from various sectors, including transportation, warehousing, and information services, expressed their uncertainty about the future impact of tariffs on business operations.
Additionally, the business activity index rose to 58.2%, reflecting increased growth in activity. Employment remained largely unchanged at 51.4%, signaling a slight expansion, while the manufacturing sector saw a contraction in employment, with its index falling to 45.3%.
In the broader economic context, Treasury yields rose, particularly at the long end of the yield curve, signaling market anticipation of higher inflation and potential monetary policy responses. The Federal Reserve’s future actions will be influenced by these economic indicators, with a more cautious approach expected after recent rate cuts. The latest data also pointed to a modest increase in job openings, with available positions rising to 8.1 million in November, signaling some stability in the labor market.
