The U.S. services sector maintained expansion in September, with retail activity contributing to growth despite a slight overall decline in services activity, according to the Institute for Supply Management’s latest PMI report. The Services PMI stood at 54.9%, down 0.5 percentage points from August but marking the 27th consecutive month above the 50% expansion threshold. The report also indicated that the Manufacturing PMI remained essentially flat at 54.5%, consistent with ongoing economic expansion.
Services PMI Components and Trends
The Business Activity Index fell to 56.5% in September, a 5.2 percentage point drop from August’s 61.7%. The New Orders Index declined to 59.8%, down 1.1 percentage points from the prior month. The Employment Index rose to 50.1% from 47.8% in August, returning to expansion territory after two months of contraction and moving above its 12-month average of 49%.
The Supplier Deliveries Index increased to 53.2% from 51.3% in August, marking the 22nd consecutive month above 50% and indicating slower delivery speeds as demand remains strong. Prices continued to rise, with the Prices Index reaching 74%, up from 72.6% in August and the highest level since July 2022. Fuel prices increased for an eighth straight month, with petroleum products, diesel, and gasoline all reporting higher costs.
Memory products saw price increases for the ninth consecutive month. The number of commodities in short supply rose to seven, including switchgear, computers, and related products. The Inventories Index rose to 57.8%, up 1.1 percentage points, while the Inventory Sentiment Index fell to 51.7%. The Backlog of Orders index increased to 56.6%, its highest since July 2022, marking the eighth consecutive month in expansion territory.
Read Also: Macy’s Herald Square revamps holiday shopping with deals and interactive
New Export Orders fell below 50% for the first time in eight months, dropping to 46.9% after a 9.4 percentage point decline. The Imports index, in expansion for three consecutive months, fell 3.4 percentage points to 52.9%. According to Steve Miller, chair of the Institute for ISM Services Business Survey Committee, the Services PMI’s 54.9% reading was 0.8 percentage points above the 12-month average of 54.1%, marking the ninth straight month the figure exceeded its 12-month average.
Miller noted that tariff and fuel cost impacts were the most frequently cited supply chain issues, with fuel costs mentioned twice as often as any other concern.
Manufacturing PMI Remains Flat, Economy Expands
The September Manufacturing PMI registered 54.5%, nearly unchanged from August’s 54.6%. The reading signaled continued economic expansion for the 23rd consecutive month. When the Manufacturing PMI stays above 47.5% for an extended period, it generally indicates broader economic growth.
Retail Trade, along with Wholesale Trade, Real Estate, Rental & Leasing, and other sectors, reported growth in services during September. Conversely, Agriculture, Forestry, Fishing & Hunting; Mining; Construction; and Management of Companies & Support Services contracted in the services sector.
Read Also: Walmart Launches AI-Powered Automated Shopping with Agent Profiles
In manufacturing, growth was reported across sectors including Electrical Equipment, Appliances & Components; Nonmetallic Mineral Products; Primary Metals; Plastics & Rubber Products; Computer & Electronic Products; Fabricated Metal Products; Furniture & Related Products; Food, Beverage & Tobacco Products; Transportation Equipment; Machinery; Miscellaneous Manufacturing; and Chemical Products. Printing & Related Support Activities and Textile Mills were the only manufacturing sectors reporting contraction in September.
Key Concerns and Outlook
Supply chain constraints and fuel costs remain top concerns for respondents, impacting both lead times and costs. The Employment Index’s return to expansion was driven by rising backlogs, high business activity, and strong new orders. Despite easing growth rates in business activity and new orders, the Backlog of Orders index reached 56.6%, its highest since July 2022.
Miller highlighted that the Supplier Deliveries Index, while increasing from a four-month decline, remained below its 12-month average of 53.7%. The overall economy’s expansion is supported by the Manufacturing PMI’s sustained position above 47.5%, indicating resilience despite recent slowdowns in activity growth.
