Growth at US service providers softened at the start of the year as a measure of orders fell to a seven-month low, indicating a slight loss of momentum in the largest part of the economy.
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Published Feb 05, 2025 • 3 minute read
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(Bloomberg) — Growth at US service providers softened at the start of the year as a measure of orders fell to a seven-month low, indicating a slight loss of momentum in the largest part of the economy.
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The Institute for Supply Management’s gauge of services slipped to 52.8 in January from 54 at the end of the 2024, according to data released Wednesday. Readings above 50 signal growth, and the latest figure is slightly firmer than the average for last year.
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A gauge of new orders placed with service providers 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.
“Poor weather conditions were highlighted by many respondents as impacting business levels and production,” Steve Miller, chair of the ISM Services Business Survey Committee, said in a statement. “Like last month, many panelists also mentioned preparations or concerns related to potential US government tariff actions; however, there was little mention of current business impacts as a result.”
Fourteen industries reported growth in January, led by agriculture and forestry, accommodation and food services, and mining. Three industries contracted.
An index of prices paid by service providers for materials and services settled back in January after jumping a month earlier to the highest since 2023.
The ISM measure of business activity, which parallels the group’s factory output gauge, dropped to a five-month low.
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The softer services reading contrasts with an increase in the ISM’s January manufacturing index, which showed the first month of expansion since 2022. At the same time, employment at service providers grew at the fastest pace since September 2023.
Select ISM Industry Comments
“Expecting considerable new projects to move to execution by second quarter in the energy market within the US.” — Construction
“Seeing letters announcing higher pricing from suppliers for 2025.” — Health Care & Social Assistance
“The paper market is starting to tighten up on the groundwood grades. All the North American mills are pushing dates into late February.” — Information
“Some apprehension exists with stakeholders and suppliers with government changes and potential tariff burdens.” — Management of Companies & Support Services
“The threat of tariffs is causing prices to rise. The threat of unstable international markets is resulting in shortages for various materials.” — Professional, Scientific & Technical Services
“Concern going forward is the cost of materials and project work, if any tariffs go into effect.” — Real Estate, Rental & Leasing
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“The employment market is softening as we are seeing less natural turn and getting more and better-qualified applicants. Also, requests for our services have continued to increase.” — Transportation and Warehousing
“Business is picking up but still slower than expected for January. We have had a lot of warehouse closures due to weather.” — Wholesale Trade
While the figures don’t detail the degree of employment growth during the month, the index may provide some reassurance that the government’s jobs report later this week will show a resilient labor market. Economists expect payrolls growth remained healthy in January after a solid close to 2024.
The pickup in employment may reflect an increase in delivery times at service providers. The ISM index of lead times rose to a three-month high.
(Adds select ISM industry comments, graphic)
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