US ISM Services PMI declined from 54.0 to 52.8 in January, falling short of market expectations of 54.2.
The drop was driven primarily by slower growth in business activity and new orders, both of which saw noticeable declines. Business activity/production slipped from 58.0 to 54.5, while new orders dropped from 54.4 to 51.3. Meanwhile, employment edged higher from 51.3 to 52.3, and prices eased from 64.4 to 60.4, suggesting some moderation in inflationary pressures within the service sector.
According to ISM, the weaker composite reading reflects a slowdown in business momentum, with adverse weather conditions frequently cited by respondents as a factor dampening production and demand. While concerns over potential US government tariffs were mentioned, businesses did not yet report significant direct impacts.
The decline in services activity points to some softening in economic momentum, though the sector remains in expansion territory above the 50.0 threshold. Current Services PMI reading aligns with an annualized GDP growth of 1.4%, suggesting moderate economic expansion.