Composite PMI Revised Lower, Services Jumps to 33-Month High — Evening Brief – 01.06.25

Growth accelerated in the U.S. private sector in December, but by far less than initially estimated, according to S&P Global, whose composite PMI index came in at 55.4 in the final data, compared with 56.6 in flash estimates and 54.9 in November. Still, this marked one of the fastest growth readings since March of 2022.

The slight month-on-month acceleration was driven by the services sector, whose PMI rose to 56.8 in December from 56.1 in November, a 33-month high, while the manufacturing PMI dipped to 49.4 from 49.7. The expansion of business activity and new orders among U.S. service providers was further bolstered by a greater propensity among customers to spend.

There were additional indications of a reduction in cost pressures, as inflation rates declined for the third consecutive month to their lowest level since February of 2024. However, input prices continued to rise at a rate that was significantly higher than the pre-pandemic average. A number of respondents reported wage constraints, while others mentioned increased shipping costs. For now, however, the U.S.Composite index is currently the most dominant and is diverging positively from the rest of the world.

“The US economy ended 2024 on a high according to the latest business surveys,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “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.”

The survey data indicates the economy will continue to expand in the fourth quarter, following the 3.1% GDP growth observed in the third quarter, even though the manufacturing sector continues to exert a significant burden on the economy.

“The strong service sector PMI reading for December sets the U.S. 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.”