The US December ISM Services PMI of 54.1 exceeded expectations, with the price index reaching a new high since the beginning of 2023

On Tuesday, January 7, the ISM reported that the U.S. ISM Services PMI for December exceeded expectations. The data indicates that the growth of the U.S. services sector accelerated in December, with business activity strengthening. Notably, a price index rose to its highest level since the beginning of 2023.

The U.S. ISM Services PMI for December is 54.1, expected 53.5, and the previous value for November was 52.1. A reading of 50 is the dividing line between expansion and contraction.

The December ISM Services PMI quickly reversed from the relative sluggishness of November, when it fell 3.9 points in a single month, marking the first decline since June. Since the second quarter of last year, the U.S. services PMI has been quite volatile, with the ISM Services PMI falling into contraction in both April and June.

In terms of important sub-indices:

• The index measuring prices paid for materials and services rose 6.2 points to 64.4, the highest level since the beginning of 2023, indicating increasing pressure from high costs in the services sector.
• The new orders index rose 0.5 points to 54.2, consistent with the average for 2024. New export orders slightly increased by 0.5 points to 50.1, just above the dividing line.
• The business activity index jumped 4.5 points to a three-month high of 58.2.
• The employment index is at 51.4, slightly down 0.1 points from November, showing little change and indicating that businesses are satisfied with their current number of employees.
• The backlog of orders fell 2.8 points to 44.3, marking the fifth consecutive month of decline.
• With demand warming, supplier delivery times slowed, with the index rising 3 points to 52.5, returning above the 50 mark.
• The inventory index increased by 3.5 points to 49.4, still in the contraction zone, indicating that inventories are still declining, but the rate of decline has noticeably slowed. The inventory sentiment index fell from 54.6 to 53.4, indicating that respondents believe inventories are still high, but not as high as previously thought.

Analysts state that the accelerating rise in the cost indicators of the PMI data comes at a time when Federal Reserve policymakers are taking a more cautious stance on interest rate cuts. The recovery in business activity and the increase in orders both indicate strong demand, suggesting that the U.S. economy remains on a solid footing at the end of the fourth quarter. This intensifies concerns that inflation will persist.

On the other hand, current U.S. services producers still face challenges from a strong dollar, potential tariffs, and uncertainties surrounding dockworker contract negotiations.

Alongside the ISM Services data, important labor market data for the U.S. was also released—November JOLTS job openings, which significantly exceeded expectations. Following the release of these two positive data points:

• Traders are no longer fully betting that the Federal Reserve will cut interest rates before July.

• The S&P 500 index turned down, with the Nasdaq falling 0.5%.
• The yield on the U.S. 10-year Treasury rose more than 3 basis points, reaching a daily high above 4.67%, with an intraday increase of over 4 basis points; the two-year Treasury yield rebounded 3 basis points to 4.31%, overall up 3.5 basis points.
• Spot gold fell by $3, retreating to below $2,650 per ounce, with an overall increase of less than 0.5%.

Currently, the rebound in the growth of the U.S. services sector stands in stark contrast to manufacturing. The ISM manufacturing index released last week showed that although the December ISM manufacturing PMI reached a nine-month high, it has contracted for the ninth consecutive month. U.S. manufacturing activity has been contracting almost every month for more than two years, except for one month. Manufacturing also shows signs of accelerating price index increases