January 7, 2026

The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of service sector firms.  The business activity index climbed 1.5 points in December to 56.0 after having risen 0.2 point in November.  We tend to focus on the business activity component as a measure of “production” because it seems to track better with the pace of economic activity.  Trump’s imposition of tariffs, the early stages of federal government layoffs, and deportation of immigrants have made people in the service sector nervous throughout the past year.  However, in the past several months this index has moved sharply upwards.  December’s reading is the highest since the index registered 58 percent in December 2024. Comments from respondents include: “Construction budgets for renovation, and new projects have significantly swelled” and “Reduced customer orders, reduced new business activities.”

The composite index rose 1.8 points in December to 54.4 after having gained 0.2 point in November . In December, the Services PMI^® registered a reading of 54.4 percent, 1.8 percentage points higher than the November figure of 52.6 percent and a third consecutive month of expansion.  Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management’s  Business Survey Committee said,  “In December, the Services PMI^® registered a reading of 54.4 percent, 1.8 percentage points higher than the November figure of 52.6 percent and a third consecutive month of expansion.

At its current level the ISM group says that is consistent with 1.9% growth in GDP.

Comments from respondents include:

• “We continue to experience higher prices, primarily due to the impact of the administration’s trade and tariff policies. We are disproportionately impacted by importing seafood from Southeast Asia and coffee from South America.” [Accommodation & Food Services]
• “In general, business is flat. Value brands are still experiencing higher demand. But premium brands struggle to maintain market share.” [Agriculture, Forestry, Fishing & Hunting]
• “Rising labor and staffing shortages across facilities and auxiliary services, increasing regulatory and compliance requirements within the state, continued inflationary pressure on supplies and contracted services, ongoing supply-chain variability for specialized equipment and materials, heightened sustainability expectations and state-led environmental initiatives, fluctuations in enrollment affecting institutional budgets and purchasing volumes, and increased competition and pricing volatility in the regional supplier market.” [Educational Services]
• “Overall, business is healthy, most of our purchasing is staying consistent, and we are renewing most contracts as we head into the new year.” [Finance & Insurance]
• “Flu cases on the rise; the vaccine is not of much help this year. Respiratory equipment and supplies are seeing a surge in demand.” [Health Care & Social Assistance]
• “Annual pricing markups from key service and data providers are higher than they’ve been for many years — gradually drives costs up.” [Information]
• “Continuing uncertainty and apprehension regarding tariffs and the resulting impact on pricing.” [Public Administration]
• “We expect flat national home prices in 2026, with a forecast of a 0.5-percent increase and a plausible range from a decrease of 3.6 percent to a gain of 4.6 percent. Many metro areas across the country are already posting year-over-year declines, making 2026 the most likely year since 2010 for a modest national price dip.” [Real Estate, Rental & Leasing]
• “High business activity due to the holiday season.” [Transportation & Warehousing]
• “Year-over-year growth has been coming down for the last three months. Most likely, the government shutdown was a contributor.” [Wholesale Trade]
• Comments from respondents include:  “Big pharma is spending at a faster pace than the first half of 2025” and “Customer uncertainty reducing ability to commit to new orders.”

The nonn-manufacturing orders component jumped 5.0 points in December to 57.9 After falling 3.3 points in November.  The index has been in expansion territory in 34 of the last 36 months, and December’s reading is its highest since registering 59.1 percent in September 2024. Comments from respondents include: “We are seeing lower activity on hydrocarbon chemical construction, but higher in power plant construction” and “End-of-year bookings; seasonally expected increases.”

The ISM non-manufacturing index for employment gained 3.1 points in December to 52.4 after having risen 0.7 point in November.  Seven industries reported an increase in employment in December. Comments from respondents include: “We are now able to hire more qualified people, as the labor market appears to be stabilizing” and “Did a reduction in force of roughly 10 percent as a cost-containment measure.”

The suppler deliveries component declined by 2.3 points in December to 54.1 after having risen 3.3  points in November  This component is reversed in the sense that a reading above 50 percent indicates slower deliveries to service sector firms, while a reading below 50 percent indicates faster deliveries. Thus, firms reported slower delivery times in December for the 13th month in a row. Comments from respondents include: “The current data shows that supplier deliveries have improved since October and November” and “Longer lead times for equipment.”

Finally, the price component declined 0.1 point in December to 65.3 after having fallen 4.6 points in November.  The December reading is the 103rd consecutive month of rising prices, as well as its 13th straight month above 60 percent.   Fifteen of 18 service sector industries reported an increase in prices paid during the month.  Price pressures are continuing to climb in the service sector.  They are not abating and tariffs are part of the problem.

The manufacturing sector of the economy contracted every month from November 2022 until January 2025. After rising in January and February the index has since resumed its decline.  The service sector has been steadily softened earlier in the year but has  rebonded in recent months and is only slightly lower than it was at the end of last year.  GDP grew 3.8% in the second quarter followed by 4.3% GDP growth in the third quarter and we expect 2.8% GDP growth in the fourth quarter.  Look for 2.8% GDP growth in 2026.

.Stephen Slifer

NumberNomics

Charleston, SC