ISM® PMI® Reports Roundup: October Services
The ISM® Services PMI® Report on Wednesday provided a short-term boost with October data that exceeded analysts’ expectations, although the longer-term trend — specifically, the 12-month average of the composite index reading — could be more relevant.
The Services PMI® pleased investors with a reading of 52.4 percent, the highest since February (53.5 percent). The index’s 12-month average is 51.7 percent, which is the second-lowest such number since June 2010 (51.4 percent).
That’s weak expansion … but steady, with the PMI® dipping into mild contraction (49.9 percent in May) just once in the last 12 months. Amid economic uncertainty, steady is not a bad place to be, particularly:
- During a federal government shutdown
- As the Prices Index hit the 70-percent threshold for the first time in three years
- With U.S. trade policy possibly on the verge of another jolt, as the Supreme Court on Wednesday appeared to question the legality of President Donald Trump’s use of emergency powers to implement tariffs.
“Even with the shutdown, we’re seeing some strength,” Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, told a conference call of reporters. “If the shutdown can be settled, it won’t impact travel in the next two to three months, but that’s the real wild card, as well as if furloughs turn into layoffs or firings.”
ISM Services PMI hits 8-month high. pic.twitter.com/Xxfnv8Bwii
— Larry Tentarelli, Blue Chip Daily (@bluechipdaily) November 5, 2025
Miller noted that there was a 1.6-percentage point drop in the Services PMI® in the month of the last shutdown, January 2019. The index gained 2.4 points in October, after an “unchanged” status (a reading of 50 percent) the previous month. It’s not an apples-to-apples comparison, as January is typically a post-holidays lull for the services sector, but Miller was still encouraged.
A big reason, he said, was the performance of industries that have been sluggish in recent months returned to expansion: Retail Trade; Real Estate, Rental & Leasing and Agriculture, Forestry, Fishing & Hunting. Accommodation & Food Services expanded for a second straight month, potentially building momentum heading into holiday peak season.
Such potentially shutdown-impacted industries as Public Administration (which went into contraction in October), Management of Companies & Support Services and Educational Services will bear watching, Miller said.
Panelists commented on the uncertainty of not having an approved budget and that money flow could be affected for federal projects, he said, adding, “In the short term, it’s not a big problem. If it goes longer than that, there could be an impact.”
For now, the sector can savor a combined 10.2-percentage point increase in the Business Activity (54.3 percent) and New Orders (56.2 percent) indexes in October.
The Backlog of Orders Index (40.8 percent) indicates that companies are managing order levels, despite lower employment levels. Twice in three months, the Backlog of Orders Index has hit its lowest readings since 2009.
Meanwhile, the Employment Index (48.2 percent) increased 1 percentage point but contracted for a fifth straight month. Amid the absence of U.S. Bureau of Labor Statistics data, ISM’s numbers and the private payrolls report from ADP, which on Wednesday indicated 42,000 jobs added in October, are perhaps the most definitive employment gauges for now.
“Companies can more than keep up with new orders to reduce backlog,” Miller said. “Panelists continue to mention the impact of tariffs on prices paid, but there was no indication of widespread layoffs or reductions in force. The shutdown was mentioned as impacting business activity and generating concerns for future layoffs.”
Tariffs again impacted the Services PMI® data. The Prices Index reading of 70 percent is the highest since October 2022 (70.7 percent), and the Imports Index registered 43.7 percent, down 10.9 percentage points in the last two months.
Oct ISM Services Prices Paid also came in hot at 70 vs consensus of 68.0, while the Manufacturing version was below ests at 58. An average of the two tends to track inflation pretty well, and it continues to suggest elevated readings. pic.twitter.com/RsjBPhHbHR
— Liz Thomas (@LizThomasStrat) November 5, 2025
Wrote a panelist in Utilities, “Tariffs continue to cause disruption in contracts and contracting, driving up pricing on goods, particularly engineered and manufactured equipment. The backlog of existing orders with delays continues to persist for equipment and manufactured equipment.”
Some relief could be coming after U.S. and China announced a truce last week, but what the Supreme Court has to say likely matters most — especially if the duties are invalided, causing potential refund complexity and confusion as companies head into holiday peak season.
The ISM® PMI® Reports roundup:
Bloomberg: U.S. Services Activity Expands at Fastest Pace in Eight Months. “The rebound in demand was also accompanied by more pronounced inflationary pressures. The group’s prices-paid index rose to a three-year high of 70 percent, indicating the services economy is bearing a bigger brunt of higher U.S. import duties.”
CNBC: ISM Non-Manufacturing PMI® Comes in at 52.4 Versus 50.5 Estimated. “This is a different story. You see yields zoom, zoom, zooming? That’s because of the following data points,” analyst Rick Santelli said. “The October read on ISM Services is strong: 52.4 percent is the headline, well above expectations. … (The Prices Index) is moving the wrong way, another reason yields are going up: 70 percent; we were expecting 68 percent.”
Mace News: Greater-Than-Expected Improvement for the Services Economy But Hiring Still Softened in October. “The overall report added to perceptions that the economy has improved even before the second Federal Reserve rate cut last week. Yet that improvement through October has been relatively slight. Expectations for the October (Services PMI®) had been in the neighborhood of 51 percent.”
Best ISM services since February
— Joe Carlasare (@JoeCarlasare) November 5, 2025
🔥
MarketWatch: A Big Part of the U.S. Economy Has Sped Up, ISM Finds, but More Road Bumps Loom. “(B)usinesses expressed lingering worries over high tariffs and said the government shutdown could also cause pain if it drags on. ... The services sector is more immune to tariffs than manufacturers, but virtually every company has felt the knock-on effects of the Trump administration’s new levies.”
Reuters: U.S. Services Activity Hits Eight-Month High; Employment Remains Weak. Rising orders did little to stimulate (the Employment Index). This measure has now contracted for five straight months. … Economists say demand for labor has ebbed because of economic uncertainty, tariffs and companies embracing artificial intelligence.
In case you missed Monday’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/Lechatnoir)