U.S. Services PMI Slips to 54.5 as New Orders Cool and Prices Stay High

The Institute for Supply Management said Wednesday that its U.S. services Purchasing Managers’ Index fell to 54.5 in October from 54.9 in September, a second straight monthly decline that still pointed to expansion in the sector that makes up more than two-thirds of the economy, according to the institute, CFO Dive and TD Economics.

A reading above 50 signals growth. Economists polled by Reuters had expected about 54.8. TD Economics noted that the index has now stayed in expansion territory for 28 consecutive months.

October readings

• Services PMI: 54.5, down 0.4 point from September
• New orders: 55.9, down from 59.8
• Business activity: 53.8, down 2.7 points
• Employment: 51.4, up from 50.1
• Prices paid: 73.0, down from 74.0 but still elevated
• Supplier deliveries: 56.7, up from 53.2, indicating slower deliveries

Fifteen industries reported growth, including transportation and warehousing and wholesale trade, while construction and health care and social assistance contracted, Steve Miller, chair of ISM’s services business survey committee, said in a statement cited by CFO Dive.

Cost pressure and delivery delays

Miller said tariffs and fuel costs remained the issues survey respondents cited most often. Many said they had not yet felt the full effect of those costs or had not passed them on to customers, which he said pointed to more pricing pressure ahead if oil and tariff effects are not eased.

Supplier deliveries have now slowed for 23 straight months, Reuters reported, a stretch that has helped keep input costs high. Separately, S&P Global’s U.S. services PMI fell to 56.1 in October from 58.8 in September, CFO Dive reported.

Hiring and the Fed

The employment reading’s move above 51 matched expectations for moderate job gains, Reuters said. The government’s October employment report is due Friday; economists surveyed by Reuters projected about 65,000 payroll jobs and an unemployment rate holding at 4.2%.

The Federal Reserve left its benchmark rate in a 3.75% to 4.00% range last week and said inflation remains elevated. Economists expect another rate increase in December, Reuters reported.

Sources: Institute for Supply Management, CFO Dive, TD Economics, Reuters.