Services Sector Breaks Over Index Expectations With December PMI Surge To 54.4

U.S. service sector activity delivered a significant surprise in December, defying analyst forecasts with a pronounced expansion. The Institute for Supply Management’s services PMI jumped to 54.4 last month, substantially outpacing the anticipated reading of 52.3 and marking the highest level in more than twelve months. This gain represents a sharp 1.8-point surge from November’s 52.6 figure, positioning the index well above the 50 threshold that signals economic expansion.

Unexpected Acceleration in New Orders Drives Growth

The December reading exceeded the 12-month average of 51.7 by 2.7 percentage points, according to Steve Miller, Chair of the ISM Services Business Survey Committee. Despite this positive development, he highlighted a notable caveat: the 12-month rolling average has hit its lowest point since August 2024 for three consecutive months, standing as the second-lowest mark since June 2010.

The most compelling driver behind the over index performance came from new orders, which surged dramatically to 57.9 from November’s 52.9—a robust 5-point expansion. This acceleration indicates strengthening demand across the service economy. Employment metrics also reflected improvement, with the employment index rebounding to 52.0 in December following November’s 48.9 reading, signaling the first monthly gain in service sector jobs after seven consecutive months of contraction.

Business Activity Reaches One-Year High

Business activity demonstrated comparable strength, with the activity index climbing to 56.0 in December versus 54.5 the previous month. This marks the highest reading recorded over the past year, suggesting sustained momentum in operational capacity and service delivery across industries.

On the pricing front, the index retreated to 64.3 in December from 65.4 in November—a nine-month low—yet remained above the 60 threshold for the thirteenth consecutive month. This persistence in elevated price readings reflects ongoing inflationary pressures within the service sector despite the recent modest pullback.

Manufacturing Sector Tells Contrasting Story

In sharp contrast, manufacturing activity continued deteriorating through December. The ISM manufacturing PMI edged down to 47.9, falling below the critical 50 contraction threshold. This decline, though marginal from November’s 48.2, underperformed consensus expectations for a move toward 48.3 and represents the lowest reading since October 2024. The divergence between expanding services and contracting manufacturing underscores an uneven economic recovery landscape heading into 2025.