US services growth slows to weakest pace since April as demand and hiring falter

• New business growth slowed to its weakest rate in approximately 20 months, with export business declining at the steepest pace since May due to tariffs and foreign demand uncertainty
• Employment growth stalled for the first time since February, ending a nine-month hiring streak, as firms cited cost concerns and weakening demand
• Input costs rose at a seven-month high, driving service price inflation to its highest level since August, while business confidence remained below long-term averages

Summary

Key Data:

The S&P Global US Services PMI Business Activity Index fell to 52.5 in December from 54.1 in November, marking the weakest growth pace since April. While readings above 50 indicate expansion, this represents the 35th consecutive month of growth at a notably slower rate.

Main Findings:

*Demand Weakening:* New business inflows slowed to their weakest rate in approximately 20 months due to tighter client budgets and increased caution. Export business declined for the second time in three months, with the steepest contraction since May, driven by tariffs and foreign demand uncertainty.

*Employment Stalls:* Service sector hiring reached a standstill in December, ending nine months of growth. This marked the first month since February where job cuts exceeded additions, linked to cost concerns and demand slowdown.

*Cost Pressures:* Input costs rose at the fastest pace since May, reaching a seven-month high due to tariffs, supplier charges, and labor expenses. Companies increased selling prices to the highest level since August.

*Weakening Confidence:* Business sentiment for 2026 remained below long-term averages, with firms citing government policy uncertainty, tariffs, and affordability concerns.

Market Implications:

Chris Williamson of S&P Global warned that slower growth combined with rising prices could challenge early 2026 performance. The data suggests fading post-pandemic economic resilience, with manufacturing orders falling for the first time in a year, indicating broad-based demand weakness across the economy. The combination of stagflation risks and reduced hiring may signal headwinds for equity markets and influence Federal Reserve policy decisions.