In September, the U.S. service sector activity expanded for the third consecutive month, achieving its best monthly performance in over a year. However, behind this growth, concerns remain about shrinking job markets and persistent inflationary pressures.
The Institute for Supply Management’s (ISM) non-manufacturing Purchasing Managers’ Index (PMI), which measures the overall direction of the service sector economy, rose to 54.9 in September, reaching its highest level since February 2023.
This index surpassed August’s 51.5 and exceeded market expectations of 51.7. Any PMI reading above 50 indicates expansion in the service sector.
The PMI for September reflected strong business activity with an increase in new orders. However, inflation pressures persisted during the month, with the Consumer Price Index climbing to its highest level since May.
Despite the positive overall trend, the employment index in the survey registered a contraction for the sixth time this year.
Respondents in the ISM survey noted that companies and clients are adopting a cautious approach. Many are closely monitoring the outcome of the November elections and observing the impact of the Federal Reserve’s rate cut in September.
An individual in the construction industry remarked, “Although the recent 50 basis point rate cut is encouraging, it may require another 150 basis points to boost sales.”
Another professional in the technology sector expressed, “People are worried about the economy, it seems like many are waiting for the election results in November before making solid plans for 2025 and beyond.”
The overall situation appears to be stabilizing with moderate fluctuations.
Standard & Poor’s Global Corporation released another PMI survey for the U.S. service sector, which aligned closely with the ISM report.
While business activity slightly slowed in September, decreasing from 55.7 to 55.2, the index still indicates steady growth in the industry due to the continuous expansion of new service businesses.
Chris Williamson, Chief Business Economist at S&P Market Intelligence, highlighted that rising input costs and sales prices had deterred companies from hiring last month, partly due to “continuously increasing wage growth”.
Williamson noted in the report, “Signals of inflation in the survey indicate that price pressures are staging a revival, largely linked to ongoing robust wage growth, which may dampen the Fed’s eagerness for further aggressive rate cuts.”
With uncertainty from the presidential election and increasing risks of an economic downturn, business confidence is declining, and concerns about future prospects are intensifying.
The upcoming two-day Federal Reserve meeting is scheduled for November 6th and 7th.