WASHINGTON (Reuters) – U.S. services sector activity unexpectedly slowed in January amid cooling demand, helping to curb price growth.
The Institute for Supply Management (ISM) said on Wednesday its nonmanufacturing purchasing managers index (PMI) slipped to 52.8 last month from 54.0 in December. Economists polled by Reuters had forecast the services PMI edging up to 54.3.
A PMI reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of the economy. The ISM associates a PMI reading above 49 over time with expansion in the overall economy. Domestic demand was strong in the fourth quarter, fueled by robust consumer spending.
The ISM survey’s new orders measure fell to 51.3 from 54.4 in December. That helped to pull down its gauge of prices paid for services inputs to 60.4 from 64.4 in December, which was the highest reading since February 2023.
That is a hopeful sign after progress bringing inflation down to the Federal Reserve’s 2% target stalled in recent months. The outlook for inflation is, however, uncertain as President Donald Trump’s administration pursues tariffs against the United States’ trade partners and mass deportations, actions that economists have warned would raise prices for Americans.
Trump on Monday suspended a 25% tariff on Canadian and Mexican imports until next month. An additional 10% levy on Chinese goods went into effect on Tuesday.
The U.S. central bank left its benchmark overnight interest rate unchanged in the 4.25%-4.50% range last week. The policy rate has been reduced by 100 basis points since September when the U.S. central bank started its policy easing cycle.
The Fed hiked the policy rate by 5.25 percentage points in 2022 and 2023 to tame inflation.
The survey’s measure of services employment increased to 52.3 last month from 51.3 in December. It has not been a good predictor of services payrolls in the government’s closely watched employment report, which is scheduled to be released on Friday.
Nonfarm payrolls likely increased by 170,000 jobs in January after surging 256,000 in December, a Reuters survey showed. The unemployment rate is forecast unchanged at 4.1%.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
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