ISM® PMI® Reports Roundup: September Services

As was the case with its Manufacturing counterpart last week, the ISM^® Services PMI^® Report for September featured a headline number that revealed strong growth for the sector, but most of the attention was on a single subindex.

The Services PMI^® of 54.9 percent missed analysts’ expectations — barely — and was down 0.5 percentage point from the previous month. But almost all eyes were on the Prices Index, which was up 1.4 percentage points to 74 percent, continuing a historic streak of elevation (more on that later).

The combined gain of 8.2 percentage points for the Manufacturing and Services Prices Index in September will be key data points for the U.S. Federal Reserve (Fed) as it ponders another interest rate increase at its meeting later this month, and costs — especially related to tariffs, fuel and labor — were top of mind for panelists, said Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management^® (ISM^®) Services Business Survey Committee.

September readings for @ISM Manufacturing and Services softened but remained in expansion territory, with the two measures continuing their notable convergence https://t.co/fzXS26u0LS

— Liz Ann Sonders (@LizAnnSonders) October 6, 2026

“As the cost of capital goes up, that will definitely have an impact on investment,” Miller told a conference call of reporters on Monday. “It’s a tough decision … some of that capital investment is required both for AI technologies that will generate productivity as well as other investments around equipment and such.

“So, I think that another increase in the interest rate will definitely have an impact in the overall growth rate for services industries. It will definitely have a direct impact for residential housing in the construction industry.”

Despite summer being its traditional busy season, Construction reported contraction in September for a second straight month. “That’s an area where we’re already seeing an impact (of increased product and financing costs),” he said, “and I expect it to continue.”

Miller added that — when taking away the coronavirus pandemic, in which the Prices Index was above 60 percent for nearly three years — this is just the third time the index has exceeded that threshold for more than 12 straight months since Services PMI^® data began being publicly reported in 2008. The other two: October 2010-September 2011 and December 2017-Novermber 2018, both periods with above-average inflation.

There was a silver lining in September: With the Business Activity (56.5 percent) and New Orders (59.8 percent) indexes continuing to show robust growth and the Backlog of Orders Index (56.6 percent) at its highest level since July 2022, businesses could no longer put off hiring, despite the expense.

The Employment Index inched back into growth territory at 50.1 percent after two months in contraction. Among companies surveyed, 16.5 percent reported adding staff in September, up from 11.8 percent the previous month; the share of those reducing head counts was slightly lower.

“In services industries, your biggest or second-biggest cost line item is labor,” Miller said. “So, when you’re seeing an increase in prices paid and you’re trying to manage your overall profitability as those costs go up, your biggest or No. 2 lever to pull is delayed hiring, especially when orders and business are strong. I think that had been a contributor to slow hiring.

“However, when you see the order backlog and continued strength in new orders, I think that companies are left with no alternative than to add workers.”

ISM services prices still looks toxic, and is still going higher https://t.co/gD2Huek8qC

— VKMacro (@VKMacro) October 5, 2026

In September, AI’s impact on services employment was evident in panelists’ comments, Miller said: “One was a restructuring and employment was lower because the company had trouble finding AI-qualified people as they’re changing roles out. So, there wasn’t a reduction in labor, but employment was lower at the moment because some roles were adding AI.

“In other cases, the commentary actually stated labor was lower because of restructuring and reducing positions as a result of AI. It’s still a very small minority of comments coming in, but it’s the first time we’re seeing that dynamic.”

In other Services PMI^® news:

• The New Export Orders Index registered 46.9 percent, a 9.4-percentage point decrease from its August reading. “Uncertainties due to delayed shipments and rising surcharges,” a Business Survey Committee panelist wrote.
• The Inventory Sentiment Index expanded for the 41st consecutive month, but the reading of 51.7 percent is down 2.4 percentage points from the previous month and the lowest since April 2023 (48.9 percent), the last time it was in contraction — suggesting that, despite the Inventories Index increasing to 57.8 percent, companies could be concerned about their stock levels heading into peak season.
• The commodities in short supply continued to reflect a data center shopping list, with memory components (for a ninth straight month) and wire and cable (fourth straight) remaining and solid-state drives, computers and related products, and switchgear joining.

The ISM^® PMI^® Reports roundup:

Bloomberg: U.S. Services Expansion Slows, Price Gauge at Four-Year High. “While resilient consumer spending, a stable job market and strong business investment continue to support demand for services, firms must also contend with mounting costs. (The Prices Index) rose to 74 percent, the highest since July 2022. The measure had hit a nearly one-year low in February, just before the Iran war sent fuel costs higher.”

CNBC: ISM Services PMI^® Comes In at 54.9% in September, Missing Estimates. “Just a tenth of a (percentage point) miss from the expectation at 55 percent,” analyst Steve Liesman said. That is down from 55.4 percent in the prior month. … (The Prices Index) surged at 74 percent versus 72.6 percent (in August). We had the highest number since August 2022; now this is the highest number since July 2022. So, we’re seeing inflation percolating up through the services sector.”

Mace News: Service Sector Growth Slows in September After Seasonal Boost in August. “Asked whether the recent move among major central banks to raise interests to fight inflation will hurt the U.S. services sector as a whole because of higher borrowing costs for households and businesses, Miller repeated his earlier comments that the ISM’s twice-annual survey released in June indicated higher capital investment in the second half of 2026 due to higher interest rates.”

Reuters: U.S. Services Sector Cools in September, Price Pressures Building. “(S)upply chains are struggling to cope, a situation that has been worsened by the conflict in the Middle East. … (The New Orders Index) eased to 59.8 percent after surging to 60.9 percent in August, which was the highest reading since February 2023. But (the Backlog of Orders Index) rose to the highest level ⁠since ​July 2022. (Backlogs) grew for the eighth straight month, the longest such stretch since February 2023.”

ISM services prices paid hit 74 today, highest since July 2022. Inflation is sticky. Own businesses with real pricing power.

— Ian Jakovan Dunlap (@_masterinvestor) October 6, 2026

The Wall Street Journal: U.S. Services-Sector Activity Continued to Expand in September. “U.S. services-sector activity expanded at a slower pace in September, a survey of managers found. Economists polled by The Wall Street Journal expected a reading of 55 percent.”

In case you missed last week’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/Rramirez125)