Activity in the U.S. services industry accelerated in December, leading to a surge in expectations for price increases due to concerns about the impact of tariffs on inflation. The Institute for Supply Management’s services index for December reached 54.1%, indicating the percentage of businesses anticipating growth, which was a 2-percentage point increase from November and exceeded the consensus forecast of 53.4% by economists surveyed by Dow Jones.
In addition to the improved overall reading, the prices index rose to 64.4%, marking a significant increase of 6.2 points or over 10%. This was the first time the index had surpassed 60% since January 2024, as noted by Steve Miller, chair of ISM’s Business Survey Committee. The prices index reached its highest level since February 2023, reflecting a positive sentiment across various industries, albeit overshadowed by concerns about tariffs.
President-elect Donald Trump’s plans to implement broad tariffs post-inauguration raised apprehensions, despite his denial of considering a more targeted approach as reported by The Washington Post. The ISM manufacturing survey for the same period also indicated a rise in prices, with the index climbing to 52.5%, up 2.2 points from the previous month.
Following the release, Treasury yields, particularly at the longer end of the curve, saw an increase. The 10-year note’s yield rose to 4.68%, up by 0.065 percentage point or 6.5 basis points during the session.
In the services survey, concerns about tariffs were highlighted by multiple respondents, although there was an overall positive outlook as 2024 concluded. One respondent in the transportation and warehousing sector mentioned uncertainty regarding tariffs and purchasing decisions, while an information services industry manager expressed optimism about the incoming administration’s potential impact on regulatory, tax, and energy policies, tempered by concerns about tariff activities.
The business activity index also saw an uptick, reaching 58.2%, a 4.5-point increase. Employment remained relatively stable at 51.4%, while the ISM manufacturing survey showed a decline to 45.3%, indicating contraction for any reading below 50% in the ISM surveys.
The Federal Reserve closely monitors inflation and employment conditions as it considers future monetary policy decisions. After reducing its benchmark borrowing rate by a full percentage point from September to December 2024, the Fed is expected to proceed cautiously, evaluating incoming economic data.
A separate report released on the same day revealed a slight increase in job openings in November, alongside a decrease in the number of workers leaving their jobs. The Labor Department’s Job Openings and Labor Turnover Survey showed a rise in available positions to 8.1 million, an increase of 259,000 from the previous month, surpassing the Dow Jones estimate of 7.7 million. Meanwhile, quits decreased to 3.06 million, down by 218,000.
The ratio of job openings to available workers remained around 1.1 to 1.
