Reade Pickert
BloombergFebruary 3, 2023

A gauge of US services snapped back in January after an end-of-2022 slump, suggesting a consumer demand resurgence that leans against concerns of an imminent economic slowdown.

The Institute for Supply Management’s non-manufacturing index rose 6 points to 55.2 in the largest monthly advance since mid-2020, data showed Friday. Readings above 50 signal growth and the January figure topped all estimates in a Bloomberg survey of economists.

The group’s gauge of new orders surged more than 15 points and a measure of business activity strengthened. Both indexes stand at 60.4, with the orders gauge matching the highest level since the start of 2022. Business activity, which parallels the ISM factory production gauge, jumped to the second-highest reading in a year.

The figures show the pullback in consumer activity at the end of last year was likely more of a hiccup than the start of a sustained retrenchment in household demand. When paired with a shockingly strong January jobs report, the data indicate the labor market, cooler inflation and rising wages continue to support consumption, at least for now.

The report also showed a rebound in demand abroad, likely a reflection of China reopening its economy after three years of strict Covid-19 restrictions on activity.

Risks remain, however. Households are leaning more on credit cards and savings, and a host of companies – notably in technology, finance, and housing – have announced thousands of layoffs in recent months. Many economists forecast the US to fall into recession this year.

The report also showed a gauge of prices paid by service providers for inputs fell to a two-year low. Still, at 67.8, the measure indicates costs are increasing.

ISM’s employment index edged up to 50, suggesting little change to headcount. Conversely, government data earlier on Friday showed private service providers added nearly 400,000 workers to payrolls in the month. Across the economy, employment jumped more than half a million, while the unemployment rate declined to a 53-year low of 3.4%.