A report from the Institute for Supply Management, released on Thursday, indicates that U.S. service sector activity experienced a significant surge in September, reaching its highest point in over a year. The ISM's services PMI rose markedly to 54.9 in September from 51.5 in August, with levels over 50 suggesting expansion. This increase surpassed economists' predictions, who anticipated a moderate rise to 51.7.
This substantial increase brought the services PMI to its highest since February 2023, when it was measured at 55.0. The main drivers of this uptick were notably accelerated growth in new orders and business activity. The new orders index leapt to 59.4 in September from 53.0 in August, while the business activity index climbed to 59.9 from 53.3.
Conversely, the employment index dipped to 48.1 in September from 50.2 in August, pointing to a decline in service sector employment. Additionally, the prices index increased to 59.4 in September from 57.3 in August, indicating a faster rate of price growth.
Steve Miller, Chair of the ISM Services Business Survey Committee, commented, "The robust growth mirrored by the index was largely corroborated by panelists' remarks, although concerns regarding political uncertainty have risen since last month." He further noted, "Supply pricing remains a challenge as supply chains continue to stabilize; a respondent raised issues about potential port labor instability. The interest-rate reduction has been received positively; however, challenges with labor costs and availability persist across most sectors."
In contrast, a separate ISM report published on Tuesday highlighted ongoing contraction in the U.S. manufacturing sector for September. The manufacturing PMI remained steady at 47.2, unchanged from August, with figures below 50 indicating contraction. Expectations were for a slight increase to 47.5. This marks the sixth consecutive month of contraction in manufacturing activity, and the 22nd time in the past 23 months.
