U.S. September ISM Services PMI Falls to 54.9 as Price Pressures Intensify
nashnova research
The U.S. ISM services PMI eased to 54.9 in September, still above the 50 expansion line, but the prices-paid index jumped to 74.0 — the service sector keeps growing, yet the cost of that growth is rising fast, making a December rate hike harder to rule out.
What does 54.9 actually tell us — is services still healthy?
The ISM services PMI slipped from 55.4 in August to 54.9, slightly below the Reuters consensus of 55.2, yet still above the 50 threshold. This means → the service sector is still expanding, just at a marginally slower pace.
Services account for more than two-thirds of U.S. economic activity; this reading remains consistent with strong third-quarter GDP growth.
S&P Global's rival services PMI came in at 58.8, the highest in nearly five years. In plain terms = two gauges are reading the same month differently; markets weight ISM more heavily because of its longer history and broader sample.
Is demand still strong — what do new orders show?
The new-orders index fell from 60.9 in August — the highest since February 2023 — to 59.8, still well above 50.
This means → demand remains robust; the peak momentum is easing, but the temperature dropped from "red-hot" to "very hot."
Why are price pressures building — where is the money going?
The prices-paid index jumped from 72.6 to 74.0, echoing a similar rise in the ISM manufacturing survey.
The supplier-deliveries index rose to 53.2 (above 50 signals slower delivery) — the 22nd consecutive month of deceleration. Put simply = goods are arriving more slowly, and that pushes costs higher.
ISM's report traced the supply-chain strain first to import tariffs, now compounded by disruptions from the U.S.–Israeli confrontation with Iran — the Middle East conflict has driven up energy prices and created shortages for commodities shipped through the Strait of Hormuz.
Economists warn that diesel prices have hit a record high; the cost pressure could spread from transport and agriculture into broader sectors.
How is the labor market holding up — still resilient?
The employment sub-index rebounded from 47.8 in August to 50.1, barely crossing back into expansion. This means → services went from "shedding jobs" to "adding jobs," but only just.
Combined with the improvement in ISM's manufacturing employment data, economists judge that the labor market remains stable overall, even though September non-farm payroll growth slowed notably.
What does this mean for the Fed — is a December hike still on?
The Fed raised its benchmark rate by 25 basis points last month to the 3.75 %–4.00 % range — the first hike in three years — and signaled further tightening ahead.
Both the services and manufacturing surveys now show prices climbing in tandem. This reflects an inflation impulse that has not faded with the economic cool-down but is instead building fresh momentum on the supply-chain and energy fronts.
In plain terms = markets had been betting on a pause after below-forecast July–August inflation and soft September payrolls, but this data re-energizes the case for "one more hike in December" — the final call still hinges on upcoming inflation and jobs prints.
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