| Consensus | Consensus Range | Actual | Previous | Revised | |
| Index | 53.8 | 53.0 to 57.0 | 53.8 | 54.4 | 53.8 |
Highlights
U.S. services sector activity expanded as expected in January, although December saw its previously reported strong reading revised lower. Business activity as well as new orders (a gauge of demand) continued to improve, while employment increased for the second month in a row albeit at a slower pace. An encouraging sign that increased activity might have staying power following the boost from the holiday period.
However, prices continue to creep up, with the Prices Paid Index now 0.2 percentage point above its 12-month seasonally adjusted average of 66.4 percent. The index has exceeded 60 percent for 14 straight months.
The ISM Services PMI saw no change, coming in at 53.8 in January, after December's reading was revised down from 54.4, and matching expectations in the Econoday survey of forecasters.
January's Services PMI is the result of a second month in a row of all four sub-indexes being in expansion territory, the report said. December 2024 and January 2025 featured similar sub-index performance, but in the last two months, the PMI is stronger year over year by an average of 0.7 percentage point.
Tariff impacts and uncertainty were common themes among panelists' comments, potentially the result of annual contract renewals and geopolitical tensions.
Market Consensus Before Announcement
Services ISM continues its decent showing, expected at 53.8 for January versus 54.4 in December.
Definition
Producing a monthly composite on general activity tracked in volumes, the Institute for Supply Management surveys several hundred service-providing firms from 16 industries (construction and mining are included). The services composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation: a reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.
Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM services index, investors will know what the economic backdrop is for the various markets. The services index is a composite of four equally weighted components: business activity, new orders, employment, and supplier deliveries. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. While the ISM manufacturing index has a long history that dates to the 1940s, this report goes back to 1997. Note that in 2020 the ISM changed the name of the report to services from non-manufacturing though it continues to track two key goods producing industries: construction and mining.
