US September Services PMI Slows to 54.9... Cost Pressures Reach Highest Level in Four Years

Services PMI at 54.9 Marks 27th Consecutive Month of Expansion
Prices Index Rises from 72.6 to 74.0
Employment Index Returns to Expansion after Three Months

The expansion of the U.S. services sector slowed slightly in September. However, demand—including new orders—remained robust, while cost pressures on businesses soared to their highest level in over four years due to supply chain bottlenecks and rising fuel prices.

According to the Institute for Supply Management (ISM) on October 5 (local time), the U.S. Services Purchasing Managers' Index (PMI) for September was 54.9, down 0.5 points from August's 55.4. This is roughly in line with market expectations, which ranged from 55.0 to 55.2.

A worker is stocking products at a supermarket located in New York. New York (USA) – Photo by Yoonjoo Hwang

The PMI indicates expansion when above 50 and contraction when below 50. The U.S. services sector has now been in expansionary territory for 27 consecutive months.

In the detailed indicators, business activity in the services sector decelerated somewhat, but demand remained strong. The Business Activity Index fell by 5.2 points from 61.7 in August to 56.5 in September. The New Orders Index also declined from 60.9 to 59.8, but remained at a high level. New orders have expanded for 16 consecutive months.

Employment has also improved. The Services Employment Index rose from 47.8 in August to 50.1 in September, returning to expansion after three months. Some companies said they are filling vacancies caused by retirements or promotions, while others reported restructuring their organizations to boost efficiency through artificial intelligence (AI) tools.

However, price pressures have intensified further. The Prices Index, which reflects the prices companies pay for raw materials and services, increased from 72.6 to 74.0. This is the highest since July 2022 (74.5). The index has stayed above 70 in six out of the past seven months and exceeded 60 for 22 consecutive months.

Supply chain pressures are also mounting. The Supplier Deliveries Index rose from 51.3 to 53.2, marking 22 consecutive months of delivery delays. Steve Miller, chairman of the ISM Services Business Survey Committee, said that respondent companies cited tariffs and fuel costs as the biggest factors affecting supply chains, noting that fuel costs were mentioned twice as often as any other single factor.

The Order Backlog Index increased from 55.6 to 56.6, reaching its highest point since July 2022. Order backlogs have now risen for eight consecutive months, the longest stretch of growth since the 26-month streak that ended in February 2023. In contrast, the New Export Orders Index plunged from 56.3 to 46.9, contracting for the first time in eight months.

Foreign media outlets have analyzed that strong domestic demand, combined with higher energy prices and supply chain disruptions resulting from conflicts in the Middle East, have heightened cost pressures in the services sector.

In particular, following a sharp jump in the ISM Manufacturing Prices Index from 71.1 to 77.9 last week, the rise in price pressures within services is expected to fuel heightened vigilance over future U.S. inflation.

Matthew Martin, Senior U.S. Economist at Oxford Economics, stated, "The clear upward trend in the Prices Index, along with rising supply chain stress and growing order backlogs, indicates increasing price pressures," adding that given the ongoing solid growth, the U.S. economy appears capable of withstanding further tightening.

This content was produced with the assistance of AI translation services.