The providers index reveals a pointy rise in costs for December as corporations worry tariffs
A person shops at a Whole Foods Market grocery store in New York City on December 17, 2024.
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Activity in the U.S. services sector accelerated in December, but brought a sharp increase in expectations for price increases as companies grew increasingly concerned about the impact of tariffs on inflation.
The Institute for Supply Management's services index reported a reading of 54.1% on Tuesday, representing the share of companies expecting growth. That was two percentage points higher than November and better than the Dow Jones survey of economists, which had a consensus forecast of 53.4%.
Together with the better overall value, the price index rose to 64.4%, an increase of 6.2 points or more than 10%. It was the first time since January 2024 that the index exceeded the 60 percent mark, said Steve Miller, chairman of the ISM Economic Survey Committee. The price index reached its highest level since February 2023.
“General optimism was expressed across many industries, but tariff concerns drove most comments from panelists,” Miller said.
President-elect Donald Trump has vowed to impose sweeping tariffs after he takes office later this month. Trump on Monday denied a Washington Post report that he was considering a narrower, more targeted approach.
The ISM manufacturing survey for the month also reflected higher prices, with the index rising to 52.5%, up 2.2 points from the previous month.
Treasury yields, particularly at the longer-term end of the curve, rose after the release. The benchmark 10-year note last yielded 4.68%, up 0.065 percentage points, or 6.5 basis points, from the session.
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In the services survey, several respondents cited tariffs as a concern, while also noting a generally positive business climate heading into 2024.
“There seems to be a lot of uncertainty about tariffs and purchasing decisions. A lot of waiting and watching,” said one respondent from the transportation and warehousing industry.
“In general, we are optimistic that the new administration will have a positive impact on regulatory, tax and energy policies, leading to economic recovery. We are concerned about tariff activity and hope for the best,” reported an information services industry manager.
The business activity index also rose by 4.5 points to 58.2%.
Employment barely changed at 51.4%; In the ISM manufacturing survey, the index fell to 45.3%, a decline of 2.8 points. Any reading in the ISM surveys below 50% represents a decline.
Readings on inflation and employment conditions are critical for the Federal Reserve as it considers future monetary policy actions. The central bank cut its key interest rate by a full percentage point from September to December in 2024, but is expected to take a more cautious approach now as it evaluates incoming economic data.
A separate report on Tuesday showed that the number of job vacancies increased in November while fewer workers left their jobs.
The Labor Department's job vacancies and workforce turnover survey showed the number of available jobs rose to 8.1 million, an increase of 259,000 for the month and more than the Dow Jones estimate of 7.7 million. At the same time, layoffs fell to 3.06 million, a decrease of 218,000.
The vacancy rate for available workers was approximately 1.1 to 1.
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