In January, the United States services sector displayed a robust start to the year, with business activity expanding at the fastest pace since June 2023, as indicated by the latest PMI® data from S&P Global. This acceleration was propelled by a swifter increase in new orders. While demand conditions improved domestically, there was also a notable uptick in new export orders, reaching the sharpest rate of growth since August 2023. Consequently, businesses showed heightened optimism regarding future output, continuing to bolster their workforce. This response was prompted by mounting pressure on capacity, with backlogs of work rising for the first time in seven months.
Simultaneously, inflationary pressures moderated. To maintain competitiveness, service providers raised output charges at the slowest rate since June 2020, aided by a deceleration in input cost growth. Input prices in the service sector rose at the second-slowest pace since October 2020.
The seasonally adjusted final S&P Global US Services PMI Business Activity Index recorded 52.5 in January, up from 51.4 in December but slightly lower than the earlier released ‘flash’ estimate of 52.9. This reading indicated a modest expansion in output, with growth accelerating for the fourth consecutive month to its fastest pace since June 2023. Increased business activity was commonly attributed to stronger demand and a quicker upturn in new orders.
Services firms reported a third straight month of growth in new business, with the pace quickening to its sharpest in seven months. Although below the series average, this expansion was credited to effective advertising campaigns and heightened customer activity.
In line with the rise in total new sales, new business from abroad also returned to growth in January, albeit marginally. The pace of expansion was the most rapid since August 2023, driven by stronger demand in key export markets.
Despite the strengthening of new business growth, service providers opted to price competitively, with some offering concessions to customers. Consequently, the rate of charge inflation eased to its softest level since June 2020, and the increase in selling prices was only marginal overall.
Although input costs continued to rise sharply in January, the pace of inflation was slower than in December and weaker than the historical trend rate. Higher operating expenses were attributed to increased supplier, fuel, and transportation costs, along with rising wage bills.
Greater inflows of new orders contributed to enhanced business confidence among US services firms at the outset of the year. Output expectations for the year ahead reached their highest level since June 2023, with optimism in line with the historical series average. Investment in advertising campaigns and the introduction of new service lines reportedly boosted firms’ sentiment.
Meanwhile, a renewed increase in backlogs of work prompted services companies to expand their staffing levels in January. Although the rise in backlogs was the quickest since March 2023, the rate of job creation was only marginal and eased from December, with some firms facing challenges in retaining or replacing employees.