The US labor market is still hanging tough, according to this week’s slate of top-tier data from the world’s largest economy, but elsewhere, signs of weakness aren’t difficult to spot.

December’s jobs report, released on Friday morning, showed another month of robust hiring, accompanied by evidence of cooler price pressures, a “Goldilocks” conjuncture that effectively left it to December’s CPI print to determine the size of the next Fed hike.

Market participants had an hour and half to parse payrolls before traders were compelled to digest a large downside surprise in America’s marquee services PMI. The ISM non-manufacturing gauge printed in contraction territory, at 49.6 for December.

It was the lowest since May 2020 and constituted the largest monthly decline since the onset of the pandemic.

No economist was even close. Consensus expected 55, and the range of estimates was 53.3 to 56. The business activity gauge plummeted 10 points from November but remained firmly in expansion territory, while the new orders index dropped by nearly 11 points to 45.2. The employment gauge likewise fell below the 50 demarcation line.

The report came on the heels of a similarly lackluster read on US factory activity, and seemed to suggest the burgeoning slowdown is now an across-the-board phenomenon, with the exception of the labor market. If that’s true, the Fed has succeeded in moderating demand. The next shoe to drop would presumably be job openings, which means December JOLTS, due in a month, will be scrutinized even more heavily than they would’ve been otherwise.

The final read on S&P Global’s services sector PMI for the US was up slightly from the flash print, at 44.7. The two surveys, which have a tendency to diverge, are now more in line.

“Contractions in output and new business were broad-based and gathered pace in December as customer unease led to dwindling demand and order postponements,” Sian Jones, a senior economist at S&P Global Market Intelligence said.

The price gauge in the ISM services report remained very elevated at 67.6, down less than three points from the prior month. That stood in stark contrast to the dramatic decline on the manufacturing side, and spoke to the goods versus services inflation debate for 2023. Goods deflation is likely, but services price growth could remain stubborn, frustrating monetary policy.

“[We] continue to see product pricing, staffing and labor cost increases across the board, with almost no easy savings opportunities in our supply chain operation,” one ISM panelist remarked. “[We] feel that this will be the standard in 2023.” I should note that supplier deliveries quickened markedly. The 48.5 print was the lowest since December of 2015 (the lower the print, the faster the performance).

The color accompanying S&P Global’s release offered a more constructive take on services inflation, even as it underscored demand concerns. “Muted demand for inputs led to the least marked uptick in costs for over two years, while companies also saw a slower increase in selling prices in a bid to entice customers and boost sales,” Jones said. “The pass through of cost savings in the form of customer discounts will likely signal further adjustments to inflation as we enter 2023.”

Coming full circle, the US economy looks to be decelerating. That’s not yet manifesting in the labor market, but jobs are a lagging indicator. At some point soon, waning demand should start to show in spending aggregates.

At that point, the dominoes may begin to fall.