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A Resilient US Service Sector: Strong Expansion and Rising Costs in January

The US service sector experienced its most significant expansion in four months this January, recovering from a near standstill at the end of 2023. This rebound was fueled by increases in orders and employment. The Institute for Supply Management reports that their comprehensive services index jumped by 2.9 points, the largest increase in a year, reaching 53.4 last month.

The group's index for prices paid for materials saw a substantial rise of 7.3 points, the sharpest increase since 2012, escalating to 64 in January. This level, the highest since February of the previous year, suggests that costs are rising more rapidly, influenced in part by the conflict in the Red Sea. Additionally, new orders placed with service providers reached a three-month high of 55.

Our Take: This is yet another set of strong US data, reinforcing the view that economic activity is not only resilient but also gaining momentum. Following last week's robust ISM PMI, these figures clearly indicate an economy far from a sharp slowdown, in fact demonstrating remarkable strength. This trend should bolster the USD and diminish expectations of interest rate cuts.


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