US Service Activity Expands At Fastest Pace Since 2024, In Mirror Image To Manufacturing Slump
It's only fitting that two days after we got the weakest US Manufacturing ISM print in over a year, earlier this morning we got a diametrically opposite report from the Service sector, which according to the Institute for Supply Management expanded in December at the fastest pace in more than a year, fueled by solid demand growth and a pickup in hiring. As the chart below shows, while the Service sector grew at the fastest pace since October 2024, the Manufacturing sector contracted at the fastest pace since November 2024.
The Institute for Supply Management’s index of services rose 1.8 points to 54.4, the highest since October 2024 (recall readings above 50 indicate expansion in the largest part of the economy). The December figure exceeded all projections in a Bloomberg survey of economists. Ironically, it printed at the exact same time as the latest JOLTs report which as we noted earlier, printed below all Wall Street estimates.
New orders expanded by the most since September 2024 and a measure of business activity, which parallels the ISM’s factory output gauge, climbed to a one-year high. Export bookings grew at the fastest pace in more than a year. Meanwhile, ISM’s index of prices paid for services and materials showed the slowest growth in nine months. The supplier deliveries index fell 2.3 points from the highest level in a year.
Inventories expanded at the fastest pace since October 2024, based on the ISM’s gauge. Even so, a measure of inventory sentiment fell for a third month, suggesting fewer service providers saw their stockpiles as being too high.
The pickup in demand helped spark the biggest growth in services employment since February, and comes just days before the December jobs report out Friday is projected to show moderate payrolls growth in December and a slightly lower unemployment rate than a month earlier.
“The broad-based strength in the headline index suggests that conditions in the services sector are picking up, hinting at the potential for some more broad-based economic growth,” Alexandra Brown, North America economist at Capital Economics, said in a note.
Eleven industries reported growth last month, led by retail trade, finance and insurance, and accommodation and food services. Five contracted, including management of companies and support services.
Below we share Select ISM survey respondent comments:
- “We continue to experience higher prices, primarily due to the impact of the administration’s trade and tariff policies. We are disproportionately impacted by importing seafood from Southeast Asia and coffee from South America.” — Accommodation & Food Services
- “In general, business is flat. Value brands are still experiencing higher demand. But premium brands struggle to maintain market share.” — Agriculture, Forestry, Fishing & Hunting
- “Overall, business is healthy, most of our purchasing is staying consistent, and we are renewing most contracts as we head into the new year.” — Finance & Insurance
- “Flu cases on the rise; the vaccine is not of much help this year. Respiratory equipment and supplies are seeing a surge in demand.” — Health Care & Social Assistance
- “Annual pricing markups from key service and data providers are higher than they’ve been for many years — gradually drives costs up.” — Information
- “Continuing uncertainty and apprehension regarding tariffs and the resulting impact on pricing.” — Public Administration
- “High business activity due to the holiday season.” — Transportation & Warehousing
Commenting on the report, Bloomberg economist Alex Tanzi said that "the December ISM Services PMI reflects the economic turnaround since the government shutdown ended in November. Despite the sizable improvement, however, the tone of commentary remained uneasy, a warning sign for the future."
Tyler Durden
Wed, 01/07/2026 – 12:28