America’s service sector, which covers everything from restaurants and retailers to hospitals and banks, kept expanding in September. But the businesses in it are paying sharply more for what they buy.
The Institute for Supply Management’s Services PMI came in at 54.9% for September, down from 55.4% in August, according to the monthly report released Oct. 5. Any reading above 50% means the sector is growing. September marked the 27th straight month of expansion.
The numbers
- Services PMI: 54.9% (August: 55.4%)
- Business activity: 56.5%, down 5.2 points
- New orders: 59.8%, down 1.1 points
- Employment: 50.1%, up 2.3 points
- Prices paid: 74.0%, up 1.4 points
- Industries growing: 13 of 17; four contracted
Prices are the story
The prices index measures how many purchasing managers report paying more. At 74%, it was the highest since July 2022, when it hit 74.5%, and it has been above 70% in six of the past seven months, said Steve Miller, chair of ISM’s Services Business Survey Committee.
Survey respondents pointed to tariffs and fuel. “The high cost of diesel fuel has increased the cost of freight dramatically,” one said. When a business’s costs climb like that, some of the increase usually ends up in the prices customers pay.
A little good news on jobs
Employment moved back into growth territory for the first time in three months, Miller said. A reading of 50.1% is barely above the line, though, so it signals stability more than a hiring boom. That fits with the latest jobs report, which showed the economy added just 29,000 jobs in September.
Who’s growing, who isn’t
Retail, wholesale trade, health care, finance and insurance, and accommodation and food services were among the 13 industries reporting growth. Agriculture, mining, construction and management and support services reported contraction.
Factories are moving at a similar pace. ISM’s manufacturing PMI, released earlier this month, was 54.5% in September, nearly unchanged from August.
What it means
Demand is holding up, with new orders still strong. But with input prices rising this quickly, many small service businesses will face a familiar choice heading into the holidays: absorb higher costs or pass them on to customers.
More on Contoh
- Small Business Sales Rose in September, but Customers Bought Fewer Things
- The Job Market Barely Grew in September: 29,000 Jobs and 4.2% Unemployment
- Forecasters See a Record Holiday Season, With Inflation Doing Some of the Lifting