The Institute for Supply Management reported the services sector returned to expansion in October, registering Purchasing Managers Index reading of 52.4 with a boost from retail.
The ISM also reported contraction for the manufacturing sector.
Purchasing and supply executives polled for the latest ISM Services PMI Report were a bit more upbeat about economic prospects versus September, when the index sat at 50, the dividing line between expansion and contraction.
In detailing the report components, Steve Miller, chair of the ISM Services Business Survey Committee, said: “The Business Activity Index also returned to expansion territory in October, registering 54.3%, 4.4 percentage points higher than the reading of 49.9% recorded in September. The New Orders Index remained in expansion in October, with a reading of 56.2%, up 5.8% from September’s figure of 50.4% and its highest reading since October 2024, 56.7%. The Employment Index contracted for the fifth month in a row with a reading of 48.2%, a one-percentage point improvement from the 47.2% recorded in September. The Supplier Deliveries Index registered 50.8%, 1.8 percentage points lower than the 52.6% recorded in September and 0.7 percentage point below its 12-month average of 51.5%. This is the 11th consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance.”
The Supplier Deliveries index is the one one in ISM PMI reports index that is inversed, as a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.
The Prices Index registered 70% in October, Miller said. It’s the first time at or above that threshold since a reading of 70.7% in October 2022. The October figure was a 0.6-percentage point increase from September’s reading of 69.4%. The index has exceeded 60% for 11 straight months. The Inventories Index registered 49.5% in October, an increase of 1.7 percentage points from September’s figure of 47.8% but in contraction for the second straight month after three months in expansion territory. The Inventory Sentiment Index expanded for the 30th consecutive month, registering 55.5%, down 0.2 percentage point from September’s figure of 55.7%. The Backlog of Orders Index was in contraction territory for the eighth month in a row, registering 40.8% in October, a 6.5-percentage point drop from the September figure of 47.3%. This is the index’s second-lowest reading since May 2009, 40%.
Miller added the October services PMI index results are “a continuation of a downward trend of more than 10 percentage points in the 12-month average since February 2022, when it was 62.6%. The rebounds in both the Business Activity and New Orders indexes in October are positive signs, while the continued contraction in the Employment index shows a lack of confidence in the continued strength of the economy. The Backlog of Orders Index continued its three-and-a-half year declining trend.
“Even with a contracting Employment Index, companies can more than keep up with new orders to reduce backlogs. Respondents continued to mention the impact of tariffs on prices paid,” Miller continued. “There was no indication of widespread layoffs or reductions in force, but the federal government shutdown was mentioned several times as impacting business activity and generating concerns for future layoffs. In the Health Care and Social Assistance and Retail Trade industries, panelists noted seasonal strength in activity, and comments from many industries mentioned continuing demand stability.”
The services industries that grew in October are Accommodation and Food Services; Retail Trade; Wholesale Trade; Real Estate, Rental and Leasing; Health Care and Social Assistance; Utilities; Transportation and Warehousing; Agriculture, Forestry, Fishing and Hunting; Information; Professional, Scientific and Technical Services, and Educational Services. The industries experiencing contraction are Arts, Entertainment and Recreation; Management of Companies and Support Services; Finance and Insurance; Public Administration; Construction, and Other Services.
Economic activity in the manufacturing sector contracted in October for the eighth straight month, ISM noted, following a two-month expansion preceded by 26 straight months of contraction. The manufacturing industries reporting growth in October are Primary Metals; Food, Beverage and Tobacco Products; Transportation Equipment; Plastics and Rubber Products; Fabricated Metal Products, and Nonmetallic Mineral Products. The industries reporting contraction in October are Textile Mills; Apparel, Leather and Allied Products; Furniture and Related Products; Paper Products; Printing and Related Support Activities; Wood Products; Petroleum and Coal Products; Electrical Equipment, Appliances and Components; Chemical Products; Machinery; Miscellaneous Manufacturing, and Computer and Electronic Products.
