U.S. service sector business activity growth slows down in January, PMI drops to 53.3

U.S. service sector business activity rose strongly in the month of January, though the pace of growth slowed for the third straight month. The seasonally adjusted final IHS Markit U.S. Service Business Activity Index dropped to 53.3 in January from 53.7 in December.

The latest index reading hinted at a strong growth in business activity among service providers, although the slowest since April 2017. Anecdotal evidence attributed the latest rise to more favorable economic conditions. Greater demand also drove the most rapid rise in new orders since September 2017. Where growth was recorded, panelists attributed this to the acquisition of new clients and higher sales driven by rises in marketing activity.

Reflecting recent trends in output and new orders, the level of outstanding business at service sector companies rose for the ninth straight month in January. Furthermore, backlog accumulation rose to a pace that was the joint-sharpest since March 2015. In the meantime, job creation stayed strong with companies increasing their workforce figures in response to greater activity requirements.

The data for January also showed an additional rise in input costs faced by service providers to the most rapid since last September. Several survey respondents attributed the latest rise to higher raw material costs, particularly fuel. Average prices charged also rose further in January, with the rate of inflation accelerating. Stronger client demand reportedly permitted companies to pass on greater cost burdens to customers via higher charges. In all, output price inflation was strong and above the series trend.

Lastly, business sentiment rose and reached a three-month high. Improved positivity was broadly linked to planned investment and expectations of stronger client demand.

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