The Institute for Supply Management said Monday its non-manufacturing Purchasing Managers' Index fell to 54.9 in September from 55.4 in August, missing economists' forecast of 55.2. A reading above 50 signals expansion — the 27th straight month — but the pace of growth cooled. Services account for more than two-thirds of US economic activity, and the reading remains consistent with solid third-quarter growth.
The new orders index eased to 59.8 from 60.9 in August, which had been the highest since February 2023. Business activity plunged 5.2 points to 56.5. Backlogs of orders rose to 56.6, the highest since July 2022, suggesting firms still have plenty of work to get through. Growth broadened: 13 industries expanded, up from 12 in August.
The prices-paid index jumped to 74.0 from 72.6, its highest since July 2022 and the 112th consecutive month of increases. Fuel costs were the most frequently cited concern among respondents, with tariffs and supply constraints also pushing up costs and delivery times. Commodities up in price included copper, aluminum, diesel, gasoline and steel; computers, memory chips and switchgear were reported in short supply. The ISM manufacturing survey told the same story — its prices index surged 6.8 points to 77.9 — and taken together, the two surveys point to inflation picking up again in the months ahead.
New export orders plunged 9.4 points to 46.9, swinging from expansion into contraction — the weakest component of the report. Imports also eased to 52.9 from 56.3. Analysts read it as softening overseas demand compounded by trade frictions: cross-border services business is cooling even as domestic demand stays hot.
The supplier deliveries index rose to 53.2 from 51.3; a reading above 50 means slower deliveries, now for 22 consecutive months. Robust domestic demand is the main driver — solid consumer spending plus heavy business investment in AI and related infrastructure. The US-Israel war with Iran has made things worse, lifting energy prices and disrupting commodities shipped through the Strait of Hormuz; diesel prices are at record highs.
The employment index rose to 50.1 from 47.8, back in expansion territory for the first time in three months. With both the manufacturing and services surveys pointing to rising inflation, economists expect the Federal Reserve to raise interest rates in December. ISM said the September reading corresponds to roughly 2.1 percent annualized real GDP growth — the economy is still expanding, but inflation pressure is moving in the wrong direction.