Business activity in the US service sector accelerated to a seven-month high in January amid an increase in new orders, according to the S&P Global US Services PMI.

“The US service sector started the year in a sweet spot, with output and demand growth accelerating while price pressures cooled markedly,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a press release. “The key driver of faster growth was the financial services sector, where looser financial conditions tied to expectations of lower interest rates spurred greater activity in January. Households are also benefitting from loosened financial conditions, driving renewed growth in consumer-facing services.”

The S&P Global US Services PMI Business Activity Index rose to a reading of 52.5 in January from 51.4 in December 2023.

Williamson sees further improvement in February.

“Business optimism about growth prospects in the service sector has likewise jumped higher, encouraging further payroll growth, albeit the latter limited by labor shortages,” he said.

Price pressures have also shifted lower.

“Overall service sector input cost growth is now running at the second lowest for over three years, helping pull selling price growth across goods and services down to a level consistent with inflation dropping materially below the Federal Reserve’s 2% target in the near future,” Williamson said.