The Services Prices Index Reached 74.0% in September, the Highest Since July 2022

The services side of the US economy grew again in September, but more slowly and with a different mix. The Institute for Supply Management's Services PMI registered 54.9%, down 0.5 percentage point from 55.4% in August, according to the report released on October 5. Any reading above 50% indicates expansion in the sector, which accounts for the large majority of US employment.

The headline move was small. Three of the sub-indexes moved by more than two points, and they did not move in the same direction.

How to read the index

The Services PMI is a composite of four equally weighted sub-indexes: Business Activity, New Orders, Employment and Supplier Deliveries. Each is a diffusion index built from purchasing managers' answers about whether a given measure rose, fell or held steady versus the prior month. A reading of 50% means as many respondents reported an increase as reported a decrease. It measures breadth of change, not magnitude: a PMI of 54.9% says more firms saw improvement than deterioration, not that output grew 4.9%.

Supplier Deliveries is the one sub-index that inverts. A reading above 50% there means deliveries are getting slower, which the composite treats as a sign of demand pressure rather than weakness.

September against August

• Services PMI: 54.9%, from 55.4% (down 0.5)
• Business Activity: 56.5%, from 61.7% (down 5.2)
• New Orders: 59.8%, from 60.9% (down 1.1)
• Employment: 50.1%, from 47.8% (up 2.3)
• Supplier Deliveries: 53.2%, from 51.3% (up 1.9)
• Prices: 74.0%, from 72.6% (up 1.4)
• Backlog of Orders: 56.6%, from 55.6% (up 1.0)
• Inventories: 57.8%, from 56.7% (up 1.1)
• New Export Orders: 46.9%, from 56.3% (down 9.4)
• Imports: 52.9%, from 56.3% (down 3.4)
• Inventory Sentiment: 51.7%, from 54.1% (down 2.4)

The prices line is the standout

At 74.0%, the Prices Index is the highest it has been since July 2022. Steve Miller, CPSM, CSCP, chair of the ISM Services Business Survey Committee, noted in the release that the index "registered above 70 percent for the sixth time in seven months; the reading of 74 percent in September is 1.4 percentage points above August's figure of 72.6 percent and the highest since July 2022."

Respondents quoted in the report pointed at specific inputs rather than general inflation. A respondent in agriculture, forestry, fishing and hunting cited high diesel costs lifting freight expenses. One in wholesale trade said weekly commodity price increases had become routine and that manufacturers were showing little flexibility. A utilities respondent described steel availability as difficult, with international sourcing increasingly necessary.

Employment crossed back over 50

The Employment Index had been in contraction in August at 47.8%. At 50.1% it is now fractionally in expansion, which in a diffusion index means roughly as many services firms added staff as cut them. It is the narrowest possible margin, and one month does not establish a trend.

Export orders fell hard

New Export Orders dropped from 56.3% to 46.9%, a 9.4-point fall that moved the measure from expansion into contraction in a single month. Imports fell 3.4 points to 52.9%. Services export orders are a smaller and more volatile series than the domestic measures, because only a subset of surveyed firms report cross-border business at all, so single-month swings are wider than in the headline index.

Breadth

Thirteen of the services industries ISM tracks reported growth in September; four reported contraction. That is a composition consistent with an expansion that is continuing rather than broadening.