The U.S. services sector expanded by more than expected, according to two separate surveys, although the inner details of the reports paint a mixed picture.
What Twin Reports Say: The Institute for Supply Management’s (ISM) non-manufacturing purchasing managers’ index (PMI) for January came in at 53.8, unchanged from the previous month, but more than the consensus estimate of 53.5. The January and December readings marked the highest since the 55.5 reported for Oct. 2024. The sector has been expanding for 19 consecutive months.
Eleven service industries reported expansion, while five experienced contractions.
Among the components, business activity, supplier deliveries, backlog of orders, and prices expanded strongly, while new export orders experienced the steepest contraction, potentially due to the tariff policy. New orders, imports, and employment also contracted as trade policy uncertainty affected purchases.
A separate survey by S&P Global showed the headline PMI for the services sector edged up to 52.7 in January from 52.5 in December. The improvement was attributed to a steeper increase in new work.
S&P Global Chief Business Economist Chris Williamson said, “Sustained service sector growth, supported by a robust rise in manufacturing output in January, indicates the economy is growing at an annualized rate of around 1.7%.”This, however, was lower than the expansion seen before the December quarter’s slowdown.
Service providers reported the steepest reduction in foreign demand in just over three years. Also, sentiment regarding the outlook softened, linked in some instances by firms to tariffs and political uncertainty.
The composite PMI, combining data from the manufacturing and services surveys, rose 0.3 points to 53 compared with expectations of 52.8.
Implications For Futures Traders: Weak internals, including contracting new orders, employment, and exports, signal slowing forward momentum, limiting how far risk assets can run.
- Equity Index Futures (ES/NQ): Falling demand and softer sentiment favor selling rallies rather than chasing breakouts, especially ahead of key macro data.
- Treasury Futures (ZN/ZB): Mixed data keeps yields range-bound; strong activity offsets weaker orders, favoring tactical longs on yield spikes rather than aggressive trend positioning.
- Dollar Index Futures (DX): Resilient services growth offers near-term support, but falling export demand and tariff uncertainty make the dollar's strength vulnerable.
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