Dive Brief:

• For the second month in a row U.S. services companies in January grew at the fastest rate since October 2024, the Institute for Supply Management said Wednesday. The aggregate ISM services index, based on a monthly survey, rose for the 19th consecutive month.
• Among components of the ISM’s index, business activity picked up while new orders and employment increased but at a slower pace than in December, according to Steve Miller, chair of the ISM services business survey committee.
• “These are positive signs for continued expansion,” Miller said in a statement, while noting that the survey’s prices index increased above its 12-month average. Compared with December, more survey respondents in January noted “tariff impacts and uncertainty, potentially the result of annual contract renewals and geopolitical tensions,” Miller said.

Dive Insight:

The rise in the services index aligns with a gain in the ISM purchasing managers index of manufacturing activity. That measure increased last month to the highest level since August 2022, fueled partly by the first expansion in new orders since August, ISM said on Tuesday.

The ISM’s gauges of new orders, order backlogs and new export orders in manufacturing signal solid demand, according to Susan Spence, chair of the ISM’s manufacturing business survey committee.

“Although these are positive signs for the start of the year, they are tempered by [respondent] commentary citing that January is a reorder month after the holidays and some buying appears to get ahead of expected price increases due to ongoing tariff issues,” Spence said in a statement.

Federal Reserve officials in recent weeks have highlighted the strength of economic growth in the face of the highest tariffs since the 1930s.

“Once again, we are seeing an economy that remains remarkably resilient,” Richmond Fed President Tom Barkin said Tuesday, noting solid consumer spending, 4.4% gross domestic product growth during the third quarter and a decline in unemployment to 4.4% in December.

“This resilience has been enabled by strong underlying dynamics,” he said in a speech.

“With inflation down, real wages are now increasing. Asset values keep growing. Corporate earnings remain strong,” Barkin said. “In those circumstances, it’s hard to imagine consumers and businesses moving to the sidelines.”

The economy probably grew at a 4.2% annual pace during the fourth quarter, the Atlanta Fed said Monday.

Fed Chair Jerome Powell on Jan. 28 highlighted the unexpected vigor of the U.S. economy.

“The economy has once again surprised us with its strength, not for the first time,” he said, noting a spur from robust investment in the construction of data centers for artificial intelligence.

“Consumer spending overall numbers are good” even though some surveys indicate that households harbor a gloomy view of the economy, jobs and prices, he said.

Powell spoke after policymakers, in a decision with two dissents, held the main interest rate steady at a range between 3.5% and 3.75% while noting steady economic growth and signs of stability in the unemployment rate.

Policymakers cautioned that inflation persists above their 2% goal while not expressing the same degree of concern about weak hiring that prompted them to trim the benchmark interest rate at three consecutive meetings during the final months of last year.

Powell predicted that the inflationary impact from import taxes will probably begin to wane by mid-2026. Currently, though, Barkin said tariffs are at the center of C-suite debates on how much to reset prices in early 2026.

“In boardrooms around the country, sales and finance teams are debating how aggressively to increase prices, for example, in the context of increased tariff-driven input costs,” he said.

“Sales doesn’t want to pass through those costs at the risk of lost volume; finance doesn’t want to eat the cost at the risk of reduced margins,” he said.

“Inflation numbers become a key fact in that debate — helping finance raise prices when inflation is high and helping sales price cautiously when it’s not,” Barkin said.