Service Sector Steady: ISM US Services PMI Holds Firm at 53.8% to Start 2026
The U.S. services sector maintained its momentum in January 2026, signaling a resilient start to the year. According to the latest ISM® Services PMI® Report released on February 4, 2026, the headline index registered 53.8%, matching December's seasonally adjusted figure. This marks the 19th consecutive month of expansion for the sector that powers over 70% of the U.S. economy.
At the GME Academy, we view the Services PMI® as the "Main Engine" of U.S. GDP. While the manufacturing sector has recently shown signs of recovery, the consistent strength in services remains the primary shield against recessionary fears.
1. Internal Combustion: Business Activity Surges
The headline number only tells half the story. The underlying subindexes reveal a sector that is working through higher demand but facing high cost and logistical headwinds.
Business Activity (57.4%): This index jumped 2.2 percentage points, reaching its highest level since October 2024. Despite the "cold and flu season" and post-holiday lulls mentioned by respondents, actual output is accelerating.
New Orders (53.1%): While still in expansion, new orders slowed from December's 56.5%. Some firms noted that "budgets being refreshed" for the new fiscal year spurred activity, while others saw reduced customer revenue projections.
Employment (50.3%): Hiring remains on a knife-edge. The index stayed in expansion for a second month, but only barely. Labor shortages and "hiring freezes" due to state budget deficits were cited as ongoing challenges.
2. The Red Flag: Prices Hit 14-Month High
The most concerning data point for both the Federal Reserve and Forex traders is the Prices Index, which climbed to 66.6%.
Inflationary Heat: This is 1.5 percentage points higher than December and is now 0.2 points above its 12-month average.
The Tariff Factor: Respondents specifically highlighted "tariff impacts and uncertainty" as they renewed annual contracts.
Input Costs: While gasoline and diesel prices are falling, costs for copper, lumber, pharmaceuticals, and—most importantly—labor are trending upward.
3. Logistics and Inventory: The "Slower Delivery" Signal
The Supplier Deliveries Index rose to 54.2%. In the ISM® world, a reading above 50% is "inverted," meaning deliveries are getting slower.
Bottlenecks: Slower deliveries typically indicate high demand, but they also suggest supply chain friction. Respondents pointed to the "data center buildout" as a major drain on IT and electrical component inventory.
Inventory Sentiment (54.3%): For the 33rd straight month, managers feel their current inventory levels are "too high," leading to a sharp contraction in new inventory buying (45.1%).
4. Market Impact: A "Hawkish" Hold for the USD
For Forex traders, the 53.8% print was a "Goldilocks" number—not too hot to trigger a market panic, but strong enough to support the US Dollar (USD).
GDP Correlation: ISM® Chair Steve Miller noted that a 53.8% PMI® corresponds to a 1.8% annualized increase in real GDP.
Fed Implications: The jump in the Prices Index (66.6%) suggests that "Services Inflation" is sticky. This likely prevents the Federal Reserve from cutting interest rates as aggressively as the market hoped, providing a "floor" for the Dollar Index (DXY).
Industry Winners: Healthcare and Utilities led the growth, while Wholesale Trade and Transportation reported contraction.
The GME Academy Analysis: "Watch the Prices, Trade the Activity"
At Global Markets Eruditio, we caution our students that "Expansion" is not "Acceleration." The flat headline PMI® combined with rising prices suggests an economy that is growing but getting more expensive to operate.
Are You Positioned for the Inflationary Bounce? If the Prices Index continues to climb toward 70%, the "Higher for Longer" interest rate narrative will return to the forefront. This would be Bullish for USD and Bearish for Gold.
Join our FREE Macroeconomics & Forex Workshop.
Learn how to read the "Sub-Index Divergence" in the ISM® reports. We’ll show you how to identify which currency pairs (like USD/JPY) react most strongly to the Services PMI® and how to hedge against the rising costs of "sticky" inflation.
