US services sector treads water in January as new orders slow

WASHINGTON, Feb 4 (Reuters) – The U.S. services sector held steady in January, but businesses paid more for inputs, suggesting that services inflation could pick up after being on a slowing trend in recent months.

The Institute for Supply Management said on Wednesday its nonmanufacturing purchasing managers index was unchanged at 53.8 last month amid a moderation in new order growth because of a slump in exports. Economists polled by Reuters had forecast the services PMI easing to 53.5.

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.

The ISM survey’s measure of prices paid by businesses for inputs increased to 66.6 amid signs of supply strains, from 65.1 in December. Cooling services inflation has helped to offset some of the pass-through from import tariffs. Federal Reserve Chair Jerome Powell said last week that tariffs were likely to be “a one-time price increase.” 

The U.S. central bank last week left its benchmark overnight interest rate in the 3.50%-3.75% range.

The ISM’s measure of supplier deliveries increased to 54.2, the highest level since October 2024, from 51.8 in December. A reading above 50 percent indicates slower deliveries. Frigid temperatures and heavy snow across much of the country could have snarled supply chains.

The survey’s new orders gauge dropped to 53.1 from 56.5. A measure of export orders contracted to 45.0, the lowest level since March 2023, from 54.2 in the prior month. 

Some respondents in the ISM’s January manufacturing survey published on Monday reported that “U.S. geopolitical tensions are fueling ‘anti-American’ buyer sentiment.” 

President Donald Trump has imposed sweeping tariffs on trade partners, and last month said he was putting Venezuela under temporary American control after the U.S. captured President Nicolas Maduro. Trump in January threatened additional tariffs on European allies for rebuffing his demands for the U.S. to buy Greenland, before abruptly backing down.

The ISM’s measure of services employment slipped to 50.3 from 51.7 in December. The Labor Department’s employment report for January, which had been scheduled for release on Friday, has been delayed by the partial shutdown of the government. The shutdown ended on Tuesday.  

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama )