As global economic uncertainty persists, the performance of the services sector—the backbone of modern economies—has drawn particular attention. In the United States, the world's largest economy, the health of this sector significantly influences global economic trends.
Services PMI Closes 2025 on High Note
The latest Services ISM Report On Business reveals robust growth in the US services sector during December 2025. The headline Purchasing Managers' Index (PMI) registered 54.4, signaling:
- Clear expansion (above the 50-point threshold separating growth from contraction)
- 1.8 percentage point jump from November's reading
- Third consecutive month of accelerating growth
- Highest level in 2025, rebounding from May's contractionary 49.9
- Outperformance against the 12-month average of 51.7
Sector Performance Shows Divergence
While overall growth appears strong, significant variations exist across industries. December saw expansion in 11 sectors including:
- Retail trade
- Finance & insurance
- Accommodation & food services
- Transportation & warehousing
- Healthcare & social assistance
Meanwhile, five sectors contracted, highlighting structural challenges:
- Professional & technical services
- Educational services
- Construction
- Agriculture-related services
- Management support services
Key Subindex Analysis
Breaking down the PMI components reveals nuanced trends:
Business Activity (56.0): Reached its highest level since December 2024, marking three straight months of acceleration.
New Orders (52.9): While expanding for the 33rd time in 35 months, growth slowed for the sixth consecutive month—a potential warning sign.
Prices (57.9): Input costs rose at the fastest pace since September 2024, squeezing profit margins.
Employment (52.0): Returned to growth after November's contraction, supporting consumer spending.
Supplier Deliveries (51.8): Continued slowing for 13 straight months, indicating easing supply chain pressures.
Policy Impacts and Challenges
Survey respondents highlighted ongoing challenges:
- Trade policies: Accommodation/food services cited higher costs for imported seafood and coffee
- Seasonal factors: Year-end consumer spending and Q1 preparations boosted certain sectors
- Healthcare pressures: Flu outbreaks and flexible spending accounts created volatility
Looking Ahead to 2026
While 2025's average PMI (51.7) marked the second-lowest in 12 months, Q4 performance matched historical norms. The divergence between new orders and backlog orders suggests shifting demand patterns.
ISM's Steve Miller noted that potential Supreme Court rulings on tariff authority likely won't dramatically impact services growth, maintaining a cautiously optimistic outlook for 2026.