ISM Indicators Signal Stabilization in U.S. Services Sector for January

Recent economic data from the Institute for Supply Management reveals a complex picture of stability and pressure in the U.S. services industry. The ISM services index maintained its momentum in January 2025, with the purchasing managers’ index holding steady at 53.8, unchanged from the revised December figure. This stability suggests that despite economic headwinds, the services sector continues to expand, as any reading above 50 indicates sector growth.

Services Index Maintains Steady Performance Amid Mixed Signals

The underlying components of the ISM services indicator tell a more nuanced story. Steve Miller, Chair of the ISM Services Business Survey Committee, noted that “December 2024 and January 2025 featured similar subindex performance, but in the last two months, the ISM indicator is stronger year over year by an average of 0.7 percentage point.”

Within the detailed ISM breakdown, the business activity index surged to 57.4 in January from 55.2 in December, demonstrating renewed strength in actual service provision. However, this optimism was tempered by the new orders index, which retreated to 53.1 from 56.5 during the same period. The employment sub-index slipped to 50.3 in January from 51.7 in December, though it remained above the 50-point threshold—indicating that despite softening, job growth in services persisted for the second consecutive month.

Inflation Pressure Continues as ISM Data Shows Persistent Price Concerns

Perhaps most concerning for policymakers is the inflation component within ISM’s comprehensive index. The prices paid index climbed to 66.6 in January from 65.1 in December, maintaining its position above 60 for the 14th straight month. This sustained elevation reflects ongoing cost pressures throughout the service economy that have proven resistant to moderation.

Manufacturing Shows Surprising Recovery in ISM Purchasing Index

The manufacturing sector painted an even more dramatic picture in the ISM’s parallel report released the previous Monday. After nearly a year of contraction, the manufacturing PMI index jumped to 52.6 in January from 47.9 in December—crossing the critical 50-point growth threshold for the first time in 12 months. Economists had anticipated a more modest recovery to just 48.5, making this ISM manufacturing indicator a notable positive surprise for the broader economic outlook.

Together, these ISM indices suggest an economy finding its footing after a period of mixed signals, though inflation remains an ongoing challenge requiring continued monitoring.