The services index shows a big jump in prices for December as companies fear tariffs

Activity in the U.S. services industry accelerated in December, but brought with it a sharp rise in expectations of price increases as companies grew increasingly concerned about the impact of tariffs on inflation.

On Tuesday, the Institute for Supply Management's services index recorded a reading of 54.1%, which represents the share of companies that expect growth. That was 2 percentage points higher than in November and better than a Dow Jones survey of economists that showed a consensus forecast of 53.4%.

Along with the better overall reading, the price index jumped to 64.4%, an increase of 6.2 points or more than 10%. This is the first time the index has exceeded 60% since January 2024, said Steve Miller, chairman of the ISM Business Survey Committee. The price index hit its highest levels since February 2023.

“There was general optimism in many industries, but concerns about tariffs prompted most of the panelists’ comments,” Miller said.

President-elect Donald Trump has pledged to enact comprehensive tariffs after taking office later this month. Trump on Monday denied a report in The Washington Post that he was considering a narrower, more targeted approach.

This month's ISM manufacturing survey also reflects higher prices, with the index rising to 52.5%, up 2.2 points over the month.

Treasury yields, especially at the longer-term end of the curve, rose after the issuance. Benchmark 10-year bonds recently gained 4.68%, up 0.065 percentage point, or 6.5 basis points, during the session.

In the services survey, many respondents cited tariffs as a concern while citing a generally positive business climate as 2024 concludes.

“There seems to be a lot of uncertainty around tariffs and purchasing decisions. There's a lot of wait and see,” said one transportation and warehousing industry participant.

One information services industry manager said: “We are generally optimistic that the incoming administration will positively impact regulatory, tax and energy policies that will stimulate economic improvement. We are concerned about tariff activity and hope for the best.”

The commercial activity index also rose, rising to 58.2%, an increase of 4.5 points.

There was no significant change in the employment rate at 51.4%; In the ISM manufacturing survey, the index fell to 45.3%, a decrease of 2.8 points. Any ISM reading below 50% represents contraction.

Inflation readings and employment conditions are crucial to the Federal Reserve as it considers future moves in monetary policy. The central bank cut its benchmark borrowing rate by a full percentage point from September through December in 2024 but is expected to move at a more cautious pace now while assessing incoming economic data.

A separate report on Tuesday noted that job openings rose in November while fewer workers left their jobs.

The Labor Department's Job Opportunities and Labor Turnover Survey showed available jobs rising to 8.1 million, an increase of 259,000 during the month and higher than Dow Jones estimates of 7.7 million. Meanwhile, the number of smoking cessations fell to 3.06 million, a decrease of 218,000.

The job opening ratio of available workers was about 1.1 to 1.