ISM® PMI® Reports Roundup: September Services
Since the federal jobs data was not released on Friday due to the federal government shutdown, the ISM® Services PMI® Report received extra attention, particularly the Employment Index. More on that later.
The lower-than-expected composite index number — 50 percent, indicating no change in sector economic activity compared to the previous month — and disappointing subindex data on demand, however, would have been spotlighted under any conditions. For they suggest that the sector making up almost 90 percent of U.S. gross domestic product (GDP) and employing most Americans could be largely stuck in neutral for at least the near term.
“I can’t say definitively where things are headed,” Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, told a conference call of reporters on Friday.
*US ISM SERVICES BUSINESS ACTIVITY AT 49.9, LOWEST SINCE 2020
— Spencer Hakimian (@SpencerHakimian) October 3, 2025
Why is the economy so weak right now?
Miller can only look at historical PMI® data and especially that for September, which included the Business Activity Index (49.9 percent) contracting for the first time since May 2020, prices at post-coronavirus pandemic highs and a disturbing employment trend.
“There is nothing showing we’re going to change trajectory,” he said. “It’s flat — no increase or decrease. It’s not a good trajectory. There’s nothing, no impetus so far that I see that says things are going to start expanding. It’s been a gradual, consistent trend (of slowing growth) over three years, once you filter out the noise of a specific month or two.”
However, an anvil weighing down sector performance is more recent: tariffs, which Miller said have graduated from a concern to a reality for supply managers. Now, the issue is how much of those cost increases will be passed to customers — and, most importantly, their response.
The Prices Index registered 69.4 percent in September, an increase of 0.2 percentage point in the 100th consecutive month in expansion (or “increasing”) territory. The index’s 10-month average of 65.8 percent is a level that “continues to point to an acceleration in PCE (personal consumption expenditures index) supercore inflation to around 4 percent, from just over 3 percent now,” Stephen Brown, deputy chief North America economist at Capital Economics, told Barron’s.
Also, the New Export Orders Index dropped to 46.5 percent, a third straight month in contraction territory, and some Business Survey panelists cited decreasing exports as a factor in business activity shrinkage.
“Tariffs are impacting businesses and prices paid, and now we’re seeing weakness in exports,” Miller said. “When circumstances like that create overall uncertainty, the biggest lever for controlling costs and protecting profit margins in the services sector becomes employment.”
In the absence of federal data, the Employment Index was the headline jobs number of the day. While it was not as dire as the disappointing private payrolls report from ADP and the Stanford Digital Economy Lab on Wednesday, the reading of 47.2 percent indicated the fourth consecutive month of contraction.
The degree of contraction is most troubling, Miller noted. The previous three Employment Index readings were 47.2 percent in June, 46.4 percent in July and 46.5 percent in August.
Historically, ISM Services Employment only fell persistently below 50 during recessions.
— Tom Graff🔸 (@tdgraff) October 3, 2025
However it has been on and off below 50 for most of 2024-2025.
IDK what to make of this, but would be consistent w/ the big BLS downward revision, and warns of more weakness ahead. pic.twitter.com/QzEeDmNiBm
Since January 2003, the index has posted sub-48 percent readings for four straight months just twice: 22 in a row from June 2008-March 2010 during the Great Recession, and six straight from March-August 2020 as COVID-19 engulfed the globe.
“The (saving grace) is that we’re not seeing significant layoffs or company downsizing communicated from the survey respondents,” Miller said. “But we are seeing weakness in new hires and backfilling positions, and that’s due to declining overall growth in the services sector.”
In other news, while Miller said the impact of the September interest-rate cut in the services sector will largely be limited (like in other sectors), companies in such industries as Construction, Real Estate, Rental & Leasing and Financial Services figure to benefit.
The FedWatch tool by derivatives marketplace CME Group put the odds of another rate cut from the U.S. Federal Reserve at 96.7 percent, up from 87.7 percent a week ago. The tool is based on trading in the 30-day federal funds futures market, which responds to data like ISM’s Manufacturing and Services PMI®.
The ISM® PMI® Reports roundup:
Barron’s: ISM Survey Shows Slowing Growth, Rising Input Costs, to Close Out Third Quarter. “The most-important driver of U.S. growth skidded to a halt last month, raising more questions over the health of the world’s biggest economy heading into the final quarter of the year. … Still, the overall sector weakness, paired with data earlier this week showing renewed softness in the labor market, is stoking bets on Federal Reserve rate cuts into the end of the year.”
Bloomberg: U.S. Services Gauge Falls on Weakest Business Activity Since 2020. “Softer orders and business activity coincided with a fourth month of shrinking employment, albeit at a slower pace in September. Six industries reported an increase in employment, while eight noted a decrease. Stronger bookings and sales are likely needed to encourage companies to step up hiring.”
CNBC: ISM Services PMI® Comes in at 50% Versus 51.7% Estimated. “On the (New Orders Index), 50.4 percent. Big miss here. We were looking for a number somewhere around 54.5 percent, and the last look (in August) was 56 percent. Regarding investors’ reaction, he said, “Markets are somewhat nonplussed on the interest-rate side, but equities are holding their gains.”
Mace News: ‘It’s Not a Good Trajectory’ ISM’s Chief Says of Services Economy as Tariffs on Goods Spills Over. “The (Employment Index) ‘doesn’t indicate there’s a crisis to fix,’ Miller said. There’s concern among purchasing managers that (interest) rate cuts, while helpful, shouldn’t go too far or be too rapid lest that ‘stoke’ additional inflation.”
MarketWatch: Jobs in Service Sector Shrink for Fourth Month on Tariff Uncertainty, Lack of Qualified Workers. “The report also highlights the dilemma for the Federal Reserve, because there are signs of rising inflation in the report. … Economists said the data raises questions about the economy’s resilience. Business activity contracted for the first time since the 2020 shutdowns.”
Stocks continue to rally on this Friday without a jobs report. ISM services came in below forecasts though. A number not dependent on the government. Weaker data continues to support the more Fed rate cuts narrative.
— Paul R. La Monica (@LaMonicaBuzz) October 3, 2025
Reuters: U.S. Services Sector Stalls as New Orders Slow to a Crawl, Employment Weak. “Demand for workers has slackened. Economists blame this on the drag from uncertainty stemming from tariffs as well as the rise of artificial intelligence. At the same time, immigration raids have reduced labor supply, creating a dynamic that has left the labor market in paralysis. … Economists expect the lackluster labor market will spur the Federal Reserve to cut interest rates this month.”
In case you missed Wednesday’s ISM® PMI® Reports Roundup on the release of the September ISM® Manufacturing PMI® Report, you can read it here. For the most up-to-date content on the reports under the ISM® PMI® Reports umbrella, use #ISMPMI on X, formerly known as Twitter.
(Photo credit: Getty Images/AscentXMedia)