Economic activity in the services sector continued to expand in September, with retail gaining, even if overall services activity ticked down month over month, according to purchasing and supply executives polled by the Institute for Supply Management.
The latest ISM Services Purchasing Managers Index Report posted 54.9%, the 27th consecutive month in plus-50 expansion territory, but down 0.5 percentage points from August’s 55.4%.
In introducing the report including index components, Steve Miller, chair of the Institute for ISM Services Business Survey Committee, said, “The Business Activity Index remained in expansion territory in September, decreasing 5.2 percentage points to 56.5% from August’s reading of 61.7%. The New Orders Index fell to 59.8%, down 1.1 percentage points from August’s 60.9%. The Employment Index moved into expansion territory for the first time in three months, rising to 50.1% from 47.8% in August. The Supplier Deliveries Index registered 53.2%, up 1.9 percentage points from 51.3% in August. This is the 22nd consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance.”
Supplier Deliveries is the only PMI index that is inverted, as a reading above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.
Prices continued to rise in September, with the Prices Index reaching 74%, up from 72.6% in August and its highest reading since July 2022. The Inventories Index increased 1.1 percentage points to 57.8%, while the Inventory Sentiment Index declined 2.4 points to 51.7%. Backlog of Orders increased one percentage point to 56.6%, its eighth consecutive month in expansion territory.
New Export Orders, meanwhile, fell below 50% for the first time in eight months, dropping 9.4 percentage points to 46.9%. The Imports index remained in expansion territory for a third consecutive month but declined 3.4 percentage points to 52.9%.
Miller pointed out that the Services PMI’s September reading of 54.9% “is 0.8 percentage points above the 12-month average of 54.1%. The uptick of 0.4 percentage point over August’s 12-month average of 53.7% marks the ninth straight month that figure has increased.”
In September, Miller said, fuel prices were up for an eighth consecutive month.
“Petroleum-related products, diesel and gasoline were again reported as up in price in September,” Miller added, “as was memory products for the ninth month in a row. The number of commodities in short supply increased from six to seven, with switchgear and computers and related products being notable additions. The Supplier Deliveries Index continued to indicate slower performance, reversing a four-month decline with an increase to 53.2% but still below its 12-month average of 53.7%.”
The Employment Index, at 50.1%, returned to slight expansion after two months in contraction, he said, while also moving above its 12-month average of 49%. The New Orders and Backlog of Orders indexes also came in above their 12-month averages.
“Tariffs and fuel cost impacts were the most cited issues impacting respondents’ supply chains,” Miller said. “In fact, fuel costs were mentioned twice as often as any other single issue impacting performance. Supply chain constraints were also a top concern of respondents and were impacting both lead times and costs. The Employment Index’s first reading above 50% in three months seems to have resulted from increasing backlogs, as well as high levels of business activity and new orders.” Although business activity and new orders growth rates have eased, the Backlog of Orders index, at 56.6% as previously noted, hit its highest level since July 2022, when it reached 58.3%.
The September Manufacturing PMI registered 54.5%, 0.1 percentage point below the August score of 54.6%. The figure suggested that the overall U.S. economy continued to expand for the 23rd consecutive month. When a Manufacturing PMI stays above 47.5% for an extended period, it generally indicates overall economic expansion.
The services industries reporting growth in September were Wholesale Trade; Real Estate, Rental & Leasing; Other Services; Public Administration; Retail Trade; Educational Services; Utilities; Information; Transportation & Warehousing; Finance & Insurance; Accommodation & Food Services; Health Care & Social Assistance, and Professional, Scientific & Technical Services. The services industries that contracted in September were Agriculture, Forestry, Fishing & Hunting; Mining; Construction; and Management of Companies & Support Services.
The manufacturing industries reporting growth in September were 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. In September, the industries that contracted were Printing & Related Support Activities and Textile Mills.
