Chart of the Week: Further evidence of rebound at start of 2023

There was good news on demand and activity from the closely watched ISM survey of US service-sector businesses in February. The index fell very slightly to 55.1, however, this is still well above the 50 benchmark that separates expansion from contraction. The new orders sub-index rose 2.2 points to 62.6, suggesting further positive momentum to come, with business demand for labour also increasing. The prices paid sub-index has fallen off its highs but remains well above normal pre-COVID levels. All this points to continued upward pressure on inflation. Federal Reserve policymakers have repeatedly stressed that they want to see meaningful signs of disinflation in the labour-intensive services sector to feel comfortable that price pressures will wane. This survey suggests that they will have to wait a little longer to feel confident that inflation will head back down to target any time soon.

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