US Service Sector Gains Momentum, Price Pressures Intensify

The US service sector demonstrated robust growth in December, with the ISM Services PMI climbing to 54.1, indicating expansion. However, this growth was accompanied by a significant jump in service prices, reaching the highest level since early 2023. This surge in prices, driven by strong demand and increased input costs, fueled concerns about persistent inflationary pressures.

The report highlighted a strong demand environment, with new orders and business activity both increasing. This robust demand, coupled with rising input costs, fueled concerns about persistent inflationary pressures. Fifteen out of 18 service sectors reported higher prices paid, reflecting a broad-based increase in costs. This acceleration in price pressures could complicate the Federal Reserve’s efforts to lower interest rates, as they grapple with inflation.

The labour market also showed signs of resilience, with job openings reaching a six-month high. This contrasts with continued weakness in the manufacturing sector, which has been challenged by a strong dollar, potential tariffs, and global trade uncertainty.

Overall, the report underscores the mixed signals in the US economy, with strong service sector activity offset by persistent inflationary pressures and challenges in the manufacturing sector.