ISM Services Weakens, Respondents Show Tariff Concerns -

ISM Services Weakens, Respondents Show Tariff Concerns

Feb 05, 2025Jeremy ParkinsonFinance0

ISM chart and excerpts below by permission from the Institute for Supply Management® ISM®
Please consider the January 2025 Services ISM^® Report On Business^®
emphasis mine.

The report was issued today by Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management^® (ISM^®) Services Business Survey Committee: “In January, the Services PMI^® registered 52.8 percent, 1.2 percentage points lower than the seasonally adjusted December figure of 54 percent. The Business Activity Index registered 54.5 percent in January, 3.5 percentage points lower than the seasonally adjusted 58 percent recorded in December. After seasonal adjustments, this is the 56th consecutive month of expansion for the index. The New Orders Index recorded a reading of 51.3 percent in January, 3.1 percentage points lower than the seasonally adjusted December figure of 54.4 percent. The Employment Index remained in expansion territory for the fourth consecutive month; the reading of 52.3 percent is a 1-percentage point increase compared to the seasonally adjusted 51.3 percent recorded in December.

A Services PMI^® above 48.6 percent, over time, generally indicates an expansion of the overall economy. Therefore, the January Services PMI^® indicates the overall economy is expanding for the 56th straight month. Miller says, “The past relationship between the Services PMI^® and the overall economy indicates that the Services PMI^® for January (52.8 percent) corresponds to a 1.4-percentage point increase in real gross domestic product (GDP) on an annualized basis.”

Respondent Comments (I emphasized tariffs, pricing, and shortages)

“Expecting considerable new projects to move to execution by second quarter in the energy market within the U.S.” [Construction]

“Business conditions seem to be stable for us at this time.” [Educational Services]

“Seeing letters announcing higher pricing from suppliers for 2025. Relying more on analytics to find the lowest impact on cost while keeping the quality high.” [Health Care & Social Assistance]

“The paper market is starting to tighten up on the groundwood grades. All the North American mills are pushing dates into late February. It’s not causing any shortages yet, but it’s the first time in over a year that dates are moving out.” [Information]

“Some apprehension exists with stakeholders and suppliers with government changes and potential tariff burdens.” [Management of Companies & Support Services]

“The threat of tariffs is causing prices to rise. The threat of unstable international markets is resulting in shortages for various materials.” [Professional, Scientific & Technical Services]

“Concern going forward is the cost of materials and project work, if any tariffs go into effect.” [Real Estate, Rental & Leasing]

“Holiday sales not as robust as hoped for. Will need to adjust future planning.” [Retail Trade]

“The employment market is softening as we are seeing less natural turn and getting more and better-qualified applicants. Also, requests for our services have continued to increase.” [Transportation & Warehousing]

“Business is picking up but still slower than expected for January. We have had a lot of warehouse closures due to weather.” [Wholesale Trade]

This report is a bit of a mixed bag. The Manufacturing ISM rebounded into positive territory but this was a considerable degradation in services that are more important.The Bloomberg Econoday consensus was 54.Job Openings Drop by 556,000 in December, Quits Show Job Finding StressYesterday I noted Job Openings Drop by 556,000 in December, Quits Show Job Finding Stress

Job openings have collapsed. And the number of quits confirms people are staying put.

But the ADP employment report was stronger than expected. I will have a report shortly.More By This Author:UPS Slashes Jobs, Losing Business to Amazon, What’s Going On?Job Openings Drop By 556,000 In December, Quits Show Job Finding StressChina Retaliates Against Tariffs, Will Trump Escalate the Trade War?