The services sector finished 2021 on a significantly weaker note, as the ISM Services Index fell to a reading of 62.0 versus expectations of 67.0. While the Index remains at an historically strong level, last month’s drop was the largest since the early stages of the pandemic in April 2020 – suggesting that surging Omicron variant cases are weighing on the services sector today.
Prices paid by services companies ticked higher and remain at the third-highest reading on record (bottom graph). This is in stark contrast to the ISM Manufacturing Prices Paid Index, which sank sharply in its latest release. The difference between the two Prices Paid Indexes shows that while some supply/demand imbalances have eased, they still remain a problem for many other areas of the economy, especially with the recent restrictions imposed due to the Omicron variant.