US Services PMI Hits 33-Month-High As ‘Trump Effect’ Continues

Following the disappointing slide in Manufacturing survey data, US Services PMI was expected to continue rising in final December data released this morning and it did, rising from 56.1 to 56.8 (although that was well below the expected and preliminary 58.5 print) – a 33-month high.

Source: Bloomberg

US service providers saw rates of expansion in business activity and new orders strengthen further in December amid a greater willingness among customers to spend following the Presidential Election result.

There were further signs of cost pressures moderating in December as the pace of inflation eased for the third consecutive month to the weakest since last February.

But, Input prices still increased markedly, however, and at a pace that was faster than the pre-pandemic average. A number of respondents mentioned higher shipping costs, while others reported wage pressures.

For now, the US Composite index is dominating and diverging positively from the rest of the world….

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, acknowledged the ‘Trump Effect’ in the survey data:

“The US economy ended 2024 on a high according to the latest business surveys. Business activity in the vast services economy surged higher in the closing month of 2024 on fuller order books and rising optimism about prospects for the year ahead.

“Expectations of faster growth in the new year are based the anticipation of more business-friendly policies from the incoming Trump administration, including favorable tax and regulatory environments alongside protectionism via tariffs.

The improved performance of the service sector has more than offset a continued drag on the economy from the manufacturing sector, meaning the survey data point to another robust expansion of the economy in the fourth quarter after the 3.1% GDP growth seen in the third quarter…

“The strong service sector PMI reading for December sets the US economy up for a good start to 2025 but, with growth as strong as this, it’s understandable that policymakers are taking a more cautious approach to lowering interest rates.” Williamson added. 

“However, a key focus in the coming months will be the potential vulnerability of the economy to any major change in the interest rate outlook, especially as financial services activity has been an important engine of growth in late 2024, partly on the anticipation of a further lowering of borrowing costs.”

Not exactly rate-cutting weather!!