ISM® PMI® Reports Roundup: January Services

While Institute for Supply Management^® Manufacturing data revealed that factories hit the accelerator in January, the ISM^® Services PMI^® Report on Wednesday showed the sector that employs most Americans stayed in cruise control.

The Services PMI^® of 53.8 percent equaled its seasonally adjusted December reading, and all four key subindexes were in expansion for the second straight month. There were some mixed signals under the hood, however, and Steve Miller, CPSM, CSCP, Chair of the ISM Services Business Survey Committee, noted that while current data trends are positive, price pressures and geopolitical dynamics are threats to slow momentum.

“In summary, the Business Activity and Supplier Deliveries indexes were up; the New Orders and Employment indexes were down,” Miller told a conference call of reporters on Wednesday. He noted that the last two PMI^® readings were the highest since October 2024, when the index registered 55.5 percent.

Steady as she goes in January, US services sector edition. ISM Services Index stable in Jan @ 53.8, indicating moderate, steady growth. Since services dominate US econ activity, today's update suggests there's still a solid growth bias @ the start of 2026: https://t.co/9V1rBVnmVo pic.twitter.com/Ivdx5EQm35

— James Picerno (@jpicerno) February 4, 2026

The Business Activity Index climbed to 57.4 percent, a 2.2-percentage point increase from December and the highest reading since October 2024 (57.7 percent). The Supplier Deliveries Index rose to 54.2 percent, a 2.4-point gain and 14th straight month in expansion territory, which indicates longer lead times that typically reflect stronger demand or logistical constraints.

The other two indexes that directly factor into the PMI^® went in the other direction. The New Orders Index slipped to 53.1 percent, down 3.4 percentage points compared to December, and the Employment Index declined 1.4 percentage points to 50.3 percent.

Concerns about international demand also surfaced in January, exemplified by the 9.2 percent point drop of the New Export Orders Index to 45 percent. The Inventories Index also stood out: While a post-holiday lowering of the index is not unusual, the 9.1-point drop to 45.1 percent in January was a “yellow flag,” Miller said on ISM’s LinkedIn Live broadcast.

Some Services Business Survey panelists reported more negative sentiment among foreign buyers, affecting the ability to close sales abroad. That commentary echoed recent observations in the manufacturing sector.

“Wrapping that all together, it looks like the services sector is being more reluctant to carry inventory,” Miller told reporters. “I think the geopolitical pressures are certainly impacting exports, and there’s maybe a little bit more sensitivity to making sure we don’t have too high a level of inventory in hand.”

He also questioned whether this was a sign that some of the buy-American activity is starting to move the import side. If so — and it’s more than offset on exports — “that’s a problem,” he said. (The Imports Index fell into contraction in January, down 2.1 percentage points to 48.2 percent.)

The Employment Index stayed in expansion; the ADP private payrolls report for January, released on the same day, indicated 22,000 added jobs — all but 1,000 of them in services — a figure that didn’t meet expectations.

ISM’s data indicated that 16.2 percent of surveyed services companies reduced head counts in January, up from 12.5 percent the previous month. (With the federal jobs report that had been scheduled to be released on Friday delayed due to the partial government shutdown, the ISM and ADP data are the most authoritative employment data out this week.)

January ISM Services unchanged from prior month at 53.8 vs. 53.5 est. … new orders at 53.1 vs. 56.5 prior; business activity at 57.4 vs. 55.2 prior; employment down to 50.3 vs. 51.7 prior pic.twitter.com/VxO41qmV4n

— Liz Ann Sonders (@LizAnnSonders) February 4, 2026

Looking ahead, Miller said broader economic forces could further complicate the outlook. Looming tax refunds and potential U.S. Federal Reserve (Fed) interest-rate cuts could inject additional money into the economy, stimulating activity but also raising inflation risks.

The Fed is “between a rock and a hard place,” he said, referring to its traditional balancing act between supporting employment and containing price pressures. In January, the Prices Index increased 1.5 percentage points to 66.6 percent.

Miller noted that Prices Index trends haven’t changed much since the Trump administration launched its suite of reciprocal tariffs in April, suggesting that many companies are still absorbing the increased costs.

Consumer confidence poses another risk. Miller noted that economic pressures tend to erode confidence, which can translate into reduced spending “that significantly impacts our retail and accommodations and food services,” he said.

Finally, multiple panelists commented on how the rapid expansion of AI and data center development is beginning to reshape service-sector activity, prompting companies to reassess purchasing strategies, capacity planning and risk exposure.

“AI data center construction is expected to cause constraints in the IT market and availability. We haven’t seen delays on IT equipment yet but expect them in the coming months,” wrote a respondent in Health Care & Social Assistance.

On LinkedIn, Miller noted this as a trend to watch: “We’re seeing a lot of activity in utilities and information. We’re not seeing a lot of commentary on people being laid off because of AI. … But it’s driving business activity in the services sector, and (has potential) in the risk space.”

The ISM^® PMI^® Reports roundup:

Bloomberg: U.S. Services Sector Maintains Fastest Growth Since 2024. “The composition of the report painted a more nuanced picture. While a pickup in business activity underpinned the overall measure, orders growth cooled and employment barely expanded.”

ISM Services comments for January are overall better than the manufacturing sector ... some notable mentions about data centers and capacity pic.twitter.com/xk2hX5qDLP

— Kevin Gordon (@KevRGordon) February 4, 2026

MarketWatch: The Economy Got Off to a Decent Start in the New Year. Businesses Hope Things Get Even Better. “(A) recession seems far away, but the economy is not trouble-free. Inflation is still stubbornly high and the U.S. is barely adding new jobs. Economists and business leaders hope things will pick up soon, but that requires the Trump White House to stop constantly threatening new tariffs and taking other steps that heighten economic uncertainty.”

Reuters: U.S. Services Sector Steady in January, Supply Constraints From AI Data Centers Feared. “The services sector accounts for more than two-thirds of U.S. economic activity. The PMI^® suggested a steady pace of economic activity at the start of the first quarter. The government is scheduled to release its delayed advance estimate of fourth-quarter gross domestic product later this month.”

In case you missed Monday’s ISM^® PMI^® Reports Roundup on the release of the January ISM^® Manufacturing PMI^® Report, you can read it here. For the most up-to-date content on the reports under the ISM^® PMI^® Reports umbrella, use #ISMPMI on X, formerly known as Twitter.

(Photo credit: Getty Images/NewSaetiew)