MNI INTERVIEW: US Services Cost Pressures Rising -ISM's Miller
MNI (WASHINGTON) - Prices paid by U.S. service providers rose the fastest in nearly two years amid tariff concerns while business optimism grew on expectations Donald Trump will enact favorable policies, ISM Services survey chief Steve Miller told MNI Tuesday.
The price index surged 6.2 points to 64.4 in December and the quarterly average hadn't exceeded 60 since the first quarter of 2023, Miller noted. December's headline index also strengthened more than expected to 54.1, driven by robust demand and preparation for potential impacts from tariffs and port strikes, he said.
"Suppliers are being proactive in passing forward increases in pricing year-over-year in anticipation of tariffs," Miller said. "I'm expecting that we're going to see some of that impacting in inflation."
The business activity index rose 4.5 points to 58.2 and new orders added 0.5 point to 54.2, boosted in large part by "risk management," Miller said. Inventories sentiment also fell to its third-lowest level in past two years and the inventory Index increased 3.5 points as firms tried to get ahead of tariffs.
"People believe their inventories are too high," Miller said. "Buying ahead potentially, which is what some of the respondents were indicating."
TRUMP'S 'BUSINESS FAVORABILITY'
Whether the pace of price increases is sustained hinges on the Trump administration's making good on promises to extend tax cuts, Miller said.
"Corporate tax rates likely for most industries have an outsized impact in profitability compared with tariffs, at least on the purchasing side," Miller said. "More than half of the industries expected improvements due to the business favorability of the incoming administration." (See: MNI INTERVIEW: US Factories Seen Contracting Thru Year-End-ISM)
The employment index stayed in expansion territory in each month of the fourth quarter, Miller noted, the first time that's happened since 2021. The index slipped one-tenth to 51.4 in December after falling 1.5 points in November, and readings above 50 signal growth.
"A large percentage of respondents are saying they’re continuing to increase hiring, and there isn’t any indication for me that shows that’s going to slow down. The strength of the services sector in last three months indicates there will be additional pressure," he said.