U.S. Services Index Unexpectedly Reaches Nearly Two-Year High In January

A report released by the Institute for Supply Management on Wednesday showed U.S. service sector activity unexpectedly grew at an accelerated rate in the month of January.

The ISM said its services PMI inched up to 58.7 in January from a revised 57.7 in December, with a reading above 50 indicating growth in the service sector.

The uptick came as surprise to economists, who had expected the index to edge down to 56.8 from the 57.2 originally reported for the previous month.

With the unexpected monthly increase, the services PMI reached its highest level since hitting 58.8 in February of 2019.

“Services sector activity firmed at the start of 2021 despite the raging pandemic and stricter virus containment measures,” said Oren Klachkin, Lead U.S. Economist at Oxford Economics.

The increase by the headline index was partly due to a significant acceleration in the pace of growth in new orders, as the new orders index jumped to 61.8 in January from 58.6 in December.

The employment index also surged up to 55.2 in January from 48.7 in December, indicating job growth in the service sector following a one-month contraction.

On the other hand, the report said the business activity index slipped to 59.9 in January from 60.5 in December, although the reading above 50 still indicates the eighth straight month of growth.

The ISM said the prices index also edged down to 64.2 in January from 64.4 in December, pointing to a slight slowdown in the pace of price growth.

“The stage is set for a strong rebound in the services sector heading into the summer,” said Klachkin. “The recent drop in new case rates is encouraging and portends an improving health situation, particularly with inoculations set to ramp up.”

He added, “Improving health dynamics will allow deeply impacted services sector businesses to gradually reopen, accelerating the recovery that will also receive a booster shot from stimulus provided by the American Rescue Plan.”

Earlier this week, the ISM released a separate report showing a bigger than expected slowdown in the pace of growth in U.S. manufacturing activity in January.

The ISM said its manufacturing PMI declined to 58.7 in January from a downwardly revised 60.5 in December, while economists had expected the index to show a more modest drop to 60.0.

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