• US private-sector activity remains in expansion territory in December, but growth has slowed from November, with both manufacturing and services PMIs falling short of forecasts.
  • The composite PMI dipped to 53.0, indicating solid but moderating economic momentum, supporting a 'soft landing' narrative amid lingering inflation pressures.
  • Market implications include reduced pressure for aggressive Federal Reserve tightening, though persistent input-cost increases from tariffs and supply issues keep policy sensitive to inflation data.

US private-sector growth showed signs of cooling in December, according to flash PMI data released by S&P Global (SPGI), with activity expanding at a slower pace than expected and down from November's stronger readings. The composite PMI, which combines manufacturing and services, fell to 53.0 from 53.9 previously, still well above the 50 threshold that separates expansion from contraction but missing analyst projections. This moderation reflects a broader trend of easing momentum as the economy navigates higher interest rates and ongoing inflationary headwinds.

Manufacturing PMI came in at 51.8, slightly below the 52.0 estimate, indicating marginal expansion in the sector. Meanwhile, services PMI posted a larger miss at 52.9 versus 54.0 expected, signaling that growth in the dominant services segment is losing steam. According to people familiar with the matter, the data suggests businesses are facing softer demand conditions heading into year-end, though new orders remain positive overall. 'We're seeing a deceleration in growth rates, but not a collapse,' one analyst noted, pointing to the composite figure's alignment with moderate GDP growth historically.

Inflation pressures persist, however, with input costs and selling prices continuing to rise, partly driven by tariffs and supply-chain disruptions highlighted in prior reports. This complicates the Federal Reserve's policy outlook, as officials balance growth concerns against stubborn price increases. Efforts to reach a comment from the Fed were unsuccessful, but market reactions have been muted, with Treasury yields edging lower on expectations that softer data could delay further rate hikes. The S&P 500 showed little immediate movement, reflecting investor focus on upcoming labor and inflation releases for clearer signals.

Globally, the US pattern mirrors trends in other advanced economies, where services-led growth is moderating but remains above pre-pandemic averages. The J.P. Morgan (JPM) Global Composite PMI stood at 52.7 in November, indicating synchronized but easing expansion worldwide. In the US, the divergence between S&P's manufacturing reading and the ISM's contractionary figure—48.2 in November—adds nuance, with some economists citing methodological differences. Looking ahead, Trading Economics models project the composite PMI to average around 51 in 2026, suggesting a gradual normalization rather than a sharp downturn.

Correction: An earlier version misstated the prior composite PMI; it was 53.9, not 54.0.