Implications: The service sector had a solid start in 2017, essentially unchanged from the 56.6 December reading that tied the highest level seen in 2016. Meanwhile, the underlying details show a positive mix as the service sector expanded for an 85th consecutive month. The two most forward looking indices – new orders and business activity – slowed modestly from the highest readings seen in more than a year but continue to show a strong pace of expansion, suggesting service sector growth will carry forward in the months ahead. Employment, which showed a slowdown in the pace of growth in December, ticked back higher in January, in-line with the data out in this morning's employment report. We expect employment growth will moderate as the labor market tightens, but the tax and regulatory reforms promised by the new administration should provide a tailwind across the service sector. On the inflation front, the prices paid index rose to 59.0 in January from 56.1 in December, representing the highest reading in more than two years. Rising costs for copper and fuels more than offset declining prices for beef and chicken. Overall, positive sentiment in the service sector remains broad-based, with twelve of eighteen industries reporting expansion while five reported contractions. And paired with Wednesday's strong manufacturing sector report released by the ISM, it's clear that businesses are hitting the ground running in the new year.
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