US services activity picks up in January on new orders: Survey
But analysts expect the good showing last month will not last as the impact of rate hikes and heightened borrowing costs ripples through the economy
The dominant services sector in the United States bounced back in January ater contracting in December, survey data showed on Friday, helped by stronger business activity and new orders.
The sector accounts for two-thirds of the world’s biggest economy and has generally held up in the face of the Federal Reserve’s forceful campaign to raise interest rates and rein in surging inflation.
But analysts expect the good showing last month will not last as the impact of rate hikes and heightened borrowing costs ripples through the economy.
The Institute for Supply Management’s (ISM) services index came in at 55.2 percent in January, rising more than expected above the 50-percent threshold signaling growth in the sector.
“Respondents indicated that capacity and logistics performance continue to improve,” said ISM survey chair Anthony Nieves in a statement.
“The majority of panelists indicated that business is trending in a positive direction,” he added, although some firms find it hard to fill open positions while others cut headcount.
In January, the business activity index jumped 6.9 points up to 60.4 percent while the new orders index surged 15.2-points to 60.4 percent, the ISM report said.
“Despite the rebound... the longer-term slowing in the services sector remains intact,” said Oren Klachkin of Oxford Economics.
“A significant bounce is unlikely over the coming months as demand cools in the wake of Fed rate hikes and the past tightening in financial conditions,” he added.
Survey participants also indicated a difference in mood across industries.
A respondent in the accommodation and food services sector expressed positivity on growth, noting that “consumer confidence is returning, and people are more willing to spend money on luxury items.”
But another respondent in the construction sector said the “new residential housing market is still reeling from mortgage rate increases.”
“Sales have fallen off dramatically at entrylevel price points, as costs are trending flat,” the unnamed respondent said.
Separately, President Joe Biden on Friday hailed a jobs report that showed 517,000 jobs were created in January and unemployment fell to 3.4%, its lowest rate in 54 years, as evidence that his economic plan is strengthening the US economy.
In remarks at the White House, Biden said inflation continues to come down and real wages are going up, but there was more work to do to lower prices for Americans.
“We have created more jobs in two years than any presidential term within two years. That’s the strongest two years of job growth in history, by a long shot,” he said.
“We may face setbacks along the way, there will be some more work to do,” Biden said, underscoring continued efforts to lower drug prices, rebuild infrastructure and strengthen supply chains.
Biden dismissed a reporter’s question as to whether he was responsible for the high rate of inflation, saying it was high when he took office two years ago.
“Do I take any blame for inflation? No. Because it was already there when I got here, man,” Biden shot back. “Remember what the economy was like when I got here? Jobs were hemorrhaging, inflation was rising, we weren’t manufacturing a damn thing here... that’s why I don’t.”
When Biden took office in January 2021, the US economy was struggling with elevated joblessness from the COVID-19 pandemic but inflation statistics did not spike until his presidency had already begun.
The consumer price index rose 6.5% in 2022, compared to an annual rate around 1.4% when Biden took office. Economists atribute some of the causes for the rise in prices to shortages and dislocations that predated his presidency.
Republicans have blamed last year’s spike in inflation to rates over 8% on Biden’s expansive COVID-19 spending plan, but US officials said rising prices have pointed to Russia’s invasion of Ukraine and supply logjams.
Friday’s jobs report was good news for workers, but it likely points to continued interest rate hikes by the US Federal Reserve to slow an unexpectedly strong labor market seen as contributing to high inflation.
Biden did not address the implications for interest rates, focusing instead on news that Black and Hispanic unemployment rates were near record lows, and noting that real wages were going up at a moderate rate.
“The economy (is) growing at a soter clip,” Biden said. “Today’s data makes crystal clear what I’ve always known in my gut: These critics and cynics are wrong . ... Our plan is working because of the grit and resolve of the American worker.”