Economic activity in the U.S. services sector showed little movement in September, holding near the line between growth and decline, as continued weakness in retail weighed on overall performance, according to the Institute for Supply Management’s latest Purchasing Managers Index report.
The underlying survey of purchasing and supply executives in the United States yielded an index reading of 50%, indicating a breakeven point between expansion and contraction, and registered a reading at that reduced level for the first time since January 2010.
Steve Miller, chair of the ISM Services Business Survey Committee, stated that the Services PMI reading in September was two percentage points lower than the August figure.
“The Business Activity Index moved into contraction territory in September, registering 49.9%, 5.1 percentage points lower than the reading of 55% recorded in August. This is the first time the index has entered contraction territory since May 2020. The New Orders Index remained in expansion in September, with a reading of 50.4%, down 5.6 percentage points from August’s figure of 56%. The Employment Index remained in contraction territory for the fourth month in a row and the fifth time in the last six months. The reading of 47.2% is 0.7 percentage points higher than the 46.5% recorded in August. The Supplier Deliveries Index registered 52.6%, 2.3 percentage points higher than the 50.3% recorded in August and its highest reading since February: 53.4%. This is the 10th consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance.”
The Supplier Deliveries PMI Reports index is the only one that is inverted, with a reading above 50% indicating slower deliveries. This is typical as the economy improves and customer demand increases.
“The Prices Index registered 69.4% in September, a 0.2-percentage point increase from August’s reading of 69.2%,” Miller noted. “The index has exceeded 60% for 10 straight months, its longest such streak since 30 consecutive readings above 60% from October 2020 to March 2023. The Inventories Index dropped into contraction in September after three months in expansion territory, registering 47.8%, a decrease of 5.4 percentage points from August’s figure of 53.2%. The Inventory Sentiment Index expanded for the 29th consecutive month, registering 55.7%, up 0.2 percentage points from August’s figure of 55.5%. The Backlog of Orders Index remained in contraction territory for the seventh consecutive month, registering 47.3% in September, with a 6.9-percentage point increase from the August figure of 40.4% to reach its highest reading since April, at 48%.
Miller added that the September reading of 50% is two percentage points below the 12-month average of 52%, the lowest since September 2024, which was 51.8%.
“September’s Services PMI level returned to numbers very similar to May and July, with weakness in business activity and continued weakness in employment,” Miller pointed out. “The recovery in the Backlog of Orders Index to a reading indicating slower contraction was a positive signal, as was continued expansion in the New Orders index.”
Commentary executives offered as part of the survey generally indicated moderate or weak growth, with more isolated observations of supplier delivery challenges, Miller indicated. Employment remains in contraction territory due to a combination of delayed hiring efforts and difficulties in finding qualified staff.
The services industries reporting growth in September were: Accommodation and Food Services; Health Care and Social Assistance; Other Services; Information; Public Administration; Educational Services; Wholesale Trade; Finance and Insurance; Transportation and Warehousing; and Utilities. The industries reporting a contraction in the month were: Mining; Agriculture, Forestry, Fishing, and Hunting; Construction; Management of Companies and Support Services; Professional, Scientific, and Technical Services; Retail Trade; and Real Estate, Rental, and Leasing.
Economic activity in the manufacturing sector contracted in September for the seventh consecutive month, following a two-month expansion that preceded 26 straight months of tightening, ISM noted. However, the sector registered a 49.1% index rating in September, a 0.4-percentage-point increase from the 48.7% reading in August. The overall economy continued to expand for the 65th consecutive month, following a contraction in April 2020, according to ISM, with a Manufacturing PMI above 42.3%. This period generally indicates an expansion of the overall economy.
The manufacturing industries reporting growth in September were Petroleum & Coal Products, Primary Metals, Textile Mills, Fabricated Metal Products and Miscellaneous Manufacturing. The 11 industries reporting a September contraction were Wood Products; Apparel, Leather, and Allied Products; Plastics and Rubber Products; Paper Products; Furniture and Related Products; Chemical Products; Electrical Equipment, Appliances, and Components; Transportation Equipment; Nonmetallic Mineral Products; Machinery; and Computer and Electronic Products.
