MNI INTERVIEW: ISM Services Set To Grow With Little Hiring

U.S. service sector growth will persist this year, supported by AI investments and a fiscal boost from the Trump administration, but that will probably not lead to a lot of job growth and could be accompanied by fresh inflation pressures, Institute for Supply Management services chair Steve Miller told MNI.

"We have a continued positive trend on the services sector in terms of growth. We've been on a direct positive trend since March," Miller said in an interview. "It's actually watching the curve shift up. I think that's a real positive sign."

The January ISM services survey remained at 53.8. The ISM improvement came as the new order index fell 3.4pt to 53.1 and new export orders plunged 9.2pt to 45.0. The employment index eased 1.4pt to 50.3 and the prices index increased 1.5pt to 66.6. 

Miller is expecting demand to tick higher, portending faster growth overall for the services PMI. "I'm expecting to see new orders go up another percentage point going into the summer. It seems like there's generally positive commentary."

"We've been an expansion in the services sector for 19 straight months, and over the last two months we actually shifted to a positive trend in the 12-month average for the PMI," he said. (See: MNI INTERVIEW: US Manufacturing Rebound Not Yet A Trend - ISM) 

LITTLE HIRING

While the employment outlook has improved, it looks like overall hiring hasn't picked up much, Miller said. "The employment index has continued on a positive trend that started back in the July timeframe, from 46.9 up into the 50s," he said. "It's been a very weak increase but its going in the right direction." A level at 50 represents the breakeven point dividing expansion and contraction.

Miller said there will be jobless growth through the year. "The short answer is, yes, the longer answer is, there's winners and losers, which I think are going to be offsetting each other."

PRICES PERKY

The prices index continued to creep up, now 0.2pt above its 12-month seasonally adjusted average of 66.4, Miller said. "But if you look back just to April when the 'Liberation Day' stuff started, it's flat."

Still, there is a risk of some increased price pressures this year. "If we start injecting money like it seems the Trump administration is on a tear to make sure happens, I think that's a big risk on inflation."

He added that "the last time we saw a string of 60s was back in 2023. If we see that to start accelerating, and we see backlog start to increase, I think we can say there's a supply chain impact that's driving some of the economic behavior. But business activity is very high."