The Institute for Supply Management released a report on Monday showing U.S. service sector growth accelerated by more than expected in the month of January.
The ISM said its services PMI climbed to 53.4 in January from a downwardly revised 50.5 in December, with a reading above 50 indicating growth in the sector. Economists had expected the index to rise to 52.0 from the 50.6 originally reported for the previous month.
“The majority of respondents indicate that business is steady,” said Anthony Nieves, Chair of the ISM Services Business Survey Committee.
He added, “They are optimistic about the economy due to the potential impact of interest rate cuts; however, they are cautious due to inflation, associated cost pressures and ongoing geopolitical conflicts.”
The bigger than expected increase by the headline index was partly due to an acceleration in the pace of new orders growth, with the new orders index rising to 55.0 in January from 52.8 in December.
The report also showed a significant turnaround in employment in the service sector, as the employment index jumped to 50.5 in January from 43.8 in December.
Meanwhile, the ISM said the business activity index came in at 55.8 in January, unchanged from the previous month.
The report also said the prices index surged to 64.0 in January from 56.7 in December, indicating a substantial acceleration in the pace of price growth.
Last Thursday, the ISM released a separate report showing its reading on U.S. manufacturing activity unexpectedly increased in the month of January but continues to indicate contraction.
The ISM said its manufacturing PMI rose to 49.1 in January from a downwardly revised 47.1 in December. While a reading below 50 still indicates contraction, economists had expected the index to edge down to 47.0 from the 47.4 originally reported for the previous month.
With the unexpected increase, the manufacturing PMI reached its highest reading since hitting 50.0 in October 2022.
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