Economic activity in the services sector, helped by retail gains, continued to expand in January, according to the Institute for Supply Management, which reported its Purchasing Managers Index was flat versus December but still above the 50% reading that separates positive from negative conditions.
The Manufacturing PMI made strides as well.
ISM’s poll of services sector purchasing and supply executives in the United States put the services PMI at 53.8%, consistent with the seasonally adjusted figure in December, which made January the 19th consecutive month in expansion territory.
In commenting on the ISM’s component parts, Steve Miller, chair of the ISM Services Business Survey Committee, stated, “The Business Activity Index continued in expansion territory in January, registering 57.4%, 2.2 percentage points higher than the seasonally adjusted reading of 55.2% recorded in December. The New Orders Index also remained in expansion in January, with a reading of 53.1%, 3.4 percentage points below December’s seasonally adjusted figure of 56.5%. The Employment Index expanded for the second month in a row with a reading of 50.3%, a 1.4-percentage point drop from the seasonally adjusted 51.7% recorded in December. The Supplier Deliveries Index registered 54.2%, 2.4 percentage points higher than the 51.8% recorded in December. This is the 14th consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance.”
Supplier Deliveries is the only PMI index that is inversed, as a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.
“The Prices Index registered 66.6% in January, higher than the previous two months and 0.2 percentage point above its 12-month average,” Miller noted. “The January figure was a 1.5-percentage point increase from December’s seasonally adjusted reading of 65.1%. The index has exceeded 60% for 14 straight months. The Inventories Index registered 45.1% in January, a decrease of 9.1 percentage points from December’s figure of 54.2% and in contraction territory for the third time in five months. The Inventory Sentiment Index expanded for the 33rd consecutive month, registering 54.3%, up 0.2 percentage points from December’s figure of 54.1%. The Backlog of Orders Index was in contraction territory for the 11th month in a row, registering 44% in January, a 1.4-percentage point increase from the December figure of 42.6%.
Miller said January’s Services PMI came in as the second month in a row when all four subindexes were in expansion.
“December 2024 and January 2025 featured similar subindex performance, but in the last two months, the PMI is stronger year over year by an average of 0.7 percentage point,” Miller said. “The Employment Index expanded for a second straight month for the first time since January and February 2025. These are positive signs for continued expansion. However, the closely watched Prices Index continues to creep up, now 0.2 percentage points above its 12-month seasonally adjusted average of 66.4%. There was more respondent commentary in January on tariff impacts and uncertainty, potentially the result of annual contract renewals and geopolitical tensions. Gasoline and diesel fuel continued to be cited as commodities down in price. With the highest Business Activity and Supplier Deliveries index readings since October 2024, indicating higher business activity levels and slower supplier deliveries, whether pricing increases will stick or expand needs to be closely watched.”
The services industries reporting growth in January were Health Care & Social Assistance; Utilities; Construction; Retail Trade; Information; Accommodation & Food Services; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Public Administration; Educational Services, and Finance & Insurance. The services industries reporting a contraction were Other Services; Transportation & Warehousing; Management of Companies & Support Services; Arts, Entertainment & Recreation, and Wholesale Trade.
The Manufacturing PMI registered 52.6% in January, a 4.7-percentage point increase compared to a seasonally adjusted reading of 47.9% in December. The figure, based on a poll of manufacturing purchasing and supply executives, signaled the overall economy continued in expansion for the 15th month as a manufacturing PMI above 47.5 %, over a period of time, generally indicates an expansion of the overall economy.
The manufacturing industries reporting growth in January were Printing & Related Support Activities; Apparel, Leather & Allied Products; Fabricated Metal Products; Primary Metals; Transportation Equipment; Machinery; Chemical Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products. The eight industries reporting contraction in January were Textile Mills; Wood Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Plastics & Rubber Products; Furniture & Related Products; and Miscellaneous Manufacturing.
