America's services economy kept growing in September, just at a milder pace. The Institute for Supply Management reported its services index came in at 54.9, down 0.5 point. Anything above 50 points to expansion, and Monday's report suggests demand is still underpinned by steady consumer spending, a firm labor backdrop and healthy business investment. Thirteen service industries said activity increased in September; sectors cited included real estate, wholesale trade, and accommodation and food services, while four reported declines.
Services data is the broadest read on where the US economy actually is. Market Briefs reads the releases free every morning.
The cost side heated up. ISM's prices-paid measure climbed to 74, a level last seen in July 2022, and overall cost pressures increased at the fastest pace in more than four years. As recently as February, the index hovered close to a one-year low, right ahead of the Iran war that lifted fuel costs. Supply chains are also feeling the pinch from tariffs and the Middle East conflict, with the supplier delivery index reaching its highest since June.
"Tariffs and fuel cost impacts were the most cited issues impacting respondents' supply chains; in fact, fuel costs were mentioned twice as often as any other single issue impacting performance," Steve Miller, chair of ISM's Services Business Survey Committee, said in a statement. "Supply chain constraints were also a top concern of respondents and were impacting both lead times and costs."
Orders cooled by 1.1 points to a still-strong 59.8, and the backlog index reached its highest since July 2022. Hiring looks tentative but improving, as ISM's employment index returned to expansion territory at 50.1, its first such reading since June. Translation: demand remains firm, but higher input costs and longer lead times could keep price pressures sticky, which can filter into what you pay as a consumer and what companies earn as margins get squeezed.
Cooling growth alongside rising costs is the hardest combination for the Fed. Get the free Market Briefs daily newsletter and follow the data.
