While activity in the Manufacturing sector slowed down modestly during the month of January, things really picked up steam in the Services sector, and by even more than economists were expecting. As shown in the top chart below, the ISM Services report for January surged to 59.9 from last month’s reading of 56.0. Not only was January’s 3.9 m/m increase the sixth largest since 1997 and the third largest of the current economic expansion, but at 59.9, the headline index has only been higher in three other months. On a combined basis and accounting for each sector’s share of the total economy, our January combined ISM came in at 59.8, which is also right near the highest levels of the current economic cycle.
Commentary from respondents was also positive this month. Outside of the Public Administration sector, respondents are extremely positive on the state of their businesses.
The table below summarizes each of the sub-indices of the ISM Non-Manufacturing report on both a m/m and y/y basis. Outside of Inventories, which is just barely below 50, every other sub-index is showing growth and in most cases very strong and accelerating growth. New Orders saw the largest m/m increase and is now at its highest level since early 2011. Two sub-indices we wanted to highlight specifically, though, are Employment and Prices Paid. As shown in the top chart below, the Employment component of this month’s report broke out to a record high reinforcing the theme of a strong labor market. Obviously, one worry here is that strong employment will lead to upward wage pressure ad higher prices, but while the Prices Paid component of this month’s report did rise, the magnitude of the increase was modest.