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Report On Business® Roundup: January Services PMI®

February 05, 2025
By Dan Zeiger

A post-holidays lull for the sector that makes up most of the U.S. economy is not unusual — especially with winter weather a factor — but the Services ISM® Report On Business® data for January showed a stronger-than-expected push on the brake pedal.

The Services PMI® registered 52.8 percent on Wednesday, missing analysts’ expectations and drawing attention to a continuing slowdown in new orders. However, all four subindexes (Business Activity, New Orders, Employment and Supplier Deliveries) were in expansion territory, and 14 of the 18 services industries reported growth, up from nine in December.

“It isn’t the dollar yet. It isn’t (President Donald) Trump trade practices yet,” Bloomberg TV analyst Michael McKee said after the report’s release. “It may be just that when we go into January, things move a little bit more slowly.”

The month of mixed results still translated to growth, perhaps most encouragingly in an Employment Index reading of 52.3 percent, up 1 percentage point compared to the previous month. That figure was supported by a private payrolls report by ADP on Wednesday that revealed 183,000 jobs added in January, which exceeded expectations.

However, as Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, pointed out to a conference call of reporters, the PMI® reading was the lowest for January since 2010 (50 percent). The Business Activity Index was down 3.5 percentage points to 54.5 percent, and the New Orders Index registered 51.3 percent, continuing a slowdown from a reading of 54.4 percent in December.

Pinpointing the reason might require another month of data, Miller suggested: “There’s not anything that you can draw out of the numbers,” he said, “other than there appears to be some cautiousness right now.”

Miller added, “There were panelist comments regarding supplier pricing. Maybe suppliers are trying to take advantage of the uncertainty surrounding tariffs and trying to lock in higher prices for companies that want to secure supply, and customers are reluctant to make buying commitments.”

The Prices Index, which in December reached its highest level in nearly two years, offered some relief in January, down 4 percentage points to 60.4 percent. It was the first time the index recorded back-to-back months above 60 percent since February and March 2023.

“Seeing letters announcing higher pricing from suppliers for 2025,” wrote a panelist in Health Care & Social Assistance. “Relying more on analytics to find the lowest impact on cost while keeping the quality high.” (While tariffs might be a factor in 2025, price increases in a new calendar year, particularly with pharmaceuticals, are not new in health care.)

Just as ISM’s Manufacturing report revealed on Monday, the threat of tariffs did not lead to an inventories boost in the services sector. While announced levies on products from Canada and Mexico were paused, those involving China went into effect this week. Tariffs on products from the European Union and United Kingdom are a possibility.

The Inventories Index decreased 1.9 percentage points to 47.5 percent in January, with little movement in the Inventory Sentiment Index (53.5 percent, in “too high” territory). Furthermore, the Backlog of Orders Index remained in contraction, registering 44.8 percent.

“I expected with the tariffs concerns that we would have seen a spike in inventories, but they are still in contraction territory; maybe that’s as a result of companies buying more in December rather than January,” Miller said. “So, those actions might have already been taken, but I still expected to see the inventories up. That gives me a little bit of concern about the robustness of the of the business pipeline, especially with back orders (contracting).”

While winter weather was cited by a handful of panelists, Miller said the impact was likely limited. The Supplier Deliveries Index increased just 0.5 percentage point to 53 percent, indicating only slightly longer lead times.

Was a post-holiday lull due to tariffs uncertainty, general inflation hesitancy, continuing sluggish demand or things just moving slowly? The Services PMI® data for February could provide more clarity.

“The fact that 14 of 18 industries expanded shows kind of consistent growth across the sector, albeit at a slower pace,” Miller said. “That gives you some confidence that this can be a sustained moderate growth. This month, though, other factors stood out.”

The Report On Business® roundup:

Bloomberg: U.S. Services Gauge Cools as Pace of Orders Growth Retreats. “(The New Orders Index) declined to the lowest level since June, marking the third month in the last four of cooler demand growth. The slowdown in bookings suggests activity could moderate in coming months as some Americans tighten their belts against a backdrop of the high cost of living.”

MarketWatch: The Biggest Part of the U.S. Economy Cools Off Early in the New Year. So Does Inflation. “The large service side of the economy has powered U.S. growth for the past few years and is primed to do so again in 2025. The threat of Trump tariffs, however, has offset some of the optimism of business leaders about the potential for tax cuts and a reduction in regulations.”

Reuters: U.S. Services Sector Cools in January; Price Pressures Abate. “(The Prices Index decrease) is a hopeful sign after progress bringing inflation down to the Federal Reserve's 2-percent target stalled in recent months. The outlook for inflation is, however, uncertain as President Donald Trump’s administration pursues tariffs against the U.S.'s trade partners and mass deportations, actions that economists have warned would raise prices for Americans.”

The Wall Street Journal: Treasury Yields Fall Further After Weak Services Data. “Treasury yields extended declines Wednesday after a softer-than-expected reading on U.S. services-sector activity. … Yields, which fall when bond prices rise, had already drifted lower overnight. That move was further aided when the Treasury Department, in its quarterly refunding announcement, signaled it didn't plan to increase longer-term debt sales anytime soon.”

In case you missed Monday’s Report On Business® Roundup on the release of the January Manufacturing PMI®, you can read it here. The Hospital PMI® will be released on Friday. For the most up-to-date content on the reports under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.

(Photo credit: Getty Images/FG Trade Latin)

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.