December services sector output remained in growth mode for the sixth consecutive month, according to the latest edition of the Services ISM Report on Business, released today by the Institute for Supply Management (ISM).
The December Services PMI, at 54.1 (a reading of 50 or higher signals growth) rose 2.0% over November’s 52.1 reading, growing, at a faster rate, for the sixth consecutive month, and for the 52nd time in the last 55 months, going back to the initial recovery from the pandemic in June 2020.
The December PMI was 1.6% above the 12-month average of 52.5, with October’s 56.0 and June’s 48.8, marking the respective high and low readings over that period.
ISM reported that nine of the services sectors it tracks saw growth in December, including: Finance & Insurance; Arts, Entertainment & Recreation; Retail Trade; Health Care & Social Assistance; Transportation & Warehousing; Public Administration; Accommodation & Food Services; Wholesale Trade; and Utilities. Sectors seeing contraction included: Real Estate, Rental & Leasing; Educational Services; Agriculture, Forestry, Fishing & Hunting; Professional, Scientific & Technical Services; Information; and Management of Companies & Support Services.
The report’s subindexes that factor into the NMI largely saw declines from November to December, including:
- Business Activity/Production: at 58.2, up 4.5% over November, growing, at a faster rate, for the sixth consecutive month, following a contraction in June (49.6), which was the first monthly contraction since May 2020. Business Activity/Production has expanded in 54 of the last 55 months, with 10 sectors reporting growth in December;
- New Orders: at 54.2, increased 0.5%, growing, at a faster rate for the sixth consecutive month. This followed a contraction in June for the second time since May 2020, with 17 sectors reporting growth in November;
- Employment: at 51.4, down 0.1%, growing, at a slower rate, for the third consecutive month, with nine sectors reporting growth in December;
- Backlog of Orders, at 44.3, down 2.8%, contracting, at a faster rate, for the fifth consecutive month, with four sectors reporting increases in order backlogs;
- Supplier Deliveries, at 52.5 (a reading above 50 indicates slower deliveries), up 3.0% from November, slowing after moving “faster” in November;
- Prices, at 64.4, up 6.2%, increasing, at a faster rate, for the 91st consecutive month, with 15 sectors reporting an increase in prices paid (December marks the 26th consecutive month prices have been below 70, and the first above 60 since January 2024; and
- Inventories, at 49.4, up 3.5%, contracting, at a slower rate, for the second consecutive month, with seven sectors reporting an increase in inventories
Comments from ISM member panelists included in the report highlighted various trends in the services sector.
“Preparations are underway to diversify supply in the anticipation for tariffs and the effect it will have on our business,” said an Accommodation & Food Services panelist.
And a Retail Trade panelist said that overall activity is slightly higher than planned.
In an interview, Steve Miller, Chair of the ISM Services Business Survey Committee, said that there were various drivers for December’s solid numbers.
“The improvements in the Business Activity index and the Supplier Deliveries index are what directly drove the Services PMI gains,” said Miller. “The increase in Inventories also was a factor, too. I think all three of these are probably related to potential risk around the port strike and tariff impacts.”
Addressing New Orders, while the December reading saw a slight sequential decline, the number of services sectors seeing gains was nearly halved, from 13 in November to seven in December.
Miller attributed that to a couple of sectors, which have what he called substantial GDP impacts, seeing sequential gains, including Real Estate, Rental & Leasing and Finance & Insurance.
And he likened the steady pace of the Services sector over the last six months to the levels of a diving board, with December marking “another step up the platform,” from the low board to the medium board—but not yet at the high board.
Looking ahead, Miller said that in the coming months steady growth in New Orders is needed.
“That is the big one,” he said. “It is the one that has kind of a negative trajectory. Given that backlog is so low and contracting, we need to see that New Orders flow starting to come in and maintain strength. It will all be about confidence.”
