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

The US service sector expanded at the weakest pace of growth since April, with the S&P Global US Services PMI Business Activity Index slipping to 52.5 in December from 54.1 in November.

While a reading above 50 still signals expansion, the latest figure marked the weakest pace of growth since April.

Service providers reported that activity continued to increase across much of the sector, but at a slower and less uniform rate than earlier in the year.

The easing of growth capped what had otherwise been a solid quarter, reinforcing indications that the post-pandemic resilience of the US economy may be fading.

The data suggested that business activity rose for the 35th consecutive month, but growth cooled noticeably, with softer new business inflows, stagnant hiring, and rising cost pressures pointing to a more fragile outlook.

New business inflows show marked loss of momentum

One of the clearest signs of strain came from demand conditions.

Growth in new business slowed to its weakest rate in around 20 months, reflecting tighter client budgets and greater caution among customers.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the slowdown in new work was notable not only in services but across the wider economy.

He pointed to the first fall in manufacturing orders in a year as evidence of a broad-based weakening in demand growth.

Export-oriented services faced particular pressure.

New export business declined for the second time in three months, with the rate of contraction the steepest since last May.

Respondents frequently cited tariffs and uncertainty around foreign demand as key factors weighing on overseas orders.

Hiring stalls as cost pressures intensify

Employment growth in the service sector came to a standstill in December, ending a nine-month stretch of rising staffing levels.

While the decline in jobs was marginal, it marked the first time since February that the number of firms cutting headcount exceeded those adding workers.

Survey respondents linked the lacklustre hiring trend to cost concerns, budget constraints, and the slowdown in demand.

Despite this, some capacity pressures remained evident, with backlogs of work rising modestly for the tenth consecutive month.

At the same time, operating costs rose at the fastest pace since last May.

Input price inflation accelerated to a seven-month high, driven by tariffs, higher supplier charges, and rising labour-related expenses.

Companies responded by lifting selling prices at a quicker rate, pushing overall inflation in service charges to its highest level since August.

Confidence weakens heading into 2026

Business confidence about the year ahead remained positive overall, but softened further in December and stayed below its long-term average.

Firms cited uncertainty over government policy, tariffs, and affordability as the main factors dampening sentiment.

Williamson warned that the combination of slower growth and rising prices could pose challenges in the early months of 2026.

"We also enter 2026 with future output expectations running much lower than seen at the start of 2025, fuelling concerns that December’s slowdown and job market malaise could spill over into the new year," he said.