U.S. Services Sector Maintains Expansion Momentum

Source: Dukascopy Bank SA
The U.S. services sector entered January 2026 with continued momentum, as the ISM® Services PMI® held steady at 53.8 percent, matching December's reading. This marks the 19th straight month of expansion in services and suggests the broader U.S. economy has now been growing for 68 consecutive months. Based on historical relationships, the current PMI level corresponds to an estimated 1.8 percentage point increase in annualized real GDP.

Business activity strengthened notably, with the Business Activity Index rising to 57.4 percent, signaling robust operational conditions. However, demand showed mild signs of cooling, as the New Orders Index declined to 53.1 percent, though it remained firmly in expansion territory. Labor market conditions softened slightly, with the Employment Index easing to 50.3 percent, indicating only marginal job growth and hinting at a more cautious hiring environment.

Supply chain dynamics were mixed. Supplier deliveries continued to slow, with the index rising to 54.2 percent, a trend typically associated with healthy demand. At the same time, inventories contracted sharply, falling to 45.1 percent, suggesting firms are actively managing leaner stock levels. Several demand-related components remained under pressure, as New Export Orders and Imports both moved into contraction, with export activity posting its weakest reading since March 2023. The Backlog of Orders Index also stayed in contraction for the eleventh consecutive month, reflecting ongoing demand imbalances.



Inflationary pressures intensified during the month. The Prices Index climbed to 66.6 percent, extending the streak of rising prices to 104 consecutive months and exceeding the 12-month average. Price increases were widespread across industries, driven by higher costs for labor, copper, lumber, and pharmaceuticals, while fuel prices provided limited relief by moving lower.

At the industry level, growth was reported across eleven sectors, led by Health Care & Social Assistance, Utilities, and Construction, while five industries—including Transportation & Warehousing and Wholesale Trade—remained in contraction. Survey respondents pointed to several key themes shaping conditions, including uncertainty around tariffs and geopolitical risks, which are weighing on trade flows. The expanding use of artificial intelligence is reshaping purchasing decisions and accelerating capital investment, particularly in data center construction, creating pockets of supply strain in the IT sector. Labor dynamics remain uneven, with some firms facing rising costs while others report hiring pauses or workforce attrition tied to remote work preferences.
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