October ISM Services PMI Falls to 54.5 Amid Input Cost Pressures
US services sector growth slowed marginally in October as new orders moderated, though supply chains remained strained and input prices stayed elevated, Reuters reported. The Institute for Supply Management stated Wednesday that its nonmanufacturing Purchasing Managers’ Index dipped to 54.5 last month from 54.9 in September. Any reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of US economic activity. Economists had expected the PMI to remain largely unchanged at 54.8.
Activity remains in expansion territory despite the cooling momentum, with 15 industries reporting growth in October, two more than the previous month, according to Steve Miller, Chair of the ISM Services Business Survey Committee, as cited by Kitco News. Kitco reported that spot gold traded at $4,032.70 an ounce following the release, holding critical support above $4,000 an ounce as a resilient economy and persistent inflation give the Federal Reserve room to maintain its tightening bias.
Supply Chain Strains and Sticky Inflation Keep Input Prices High
The survey’s measure of supplier deliveries jumped to 56.7 from 53.2 in September, marking 23 consecutive months of slower deliveries that have kept input costs high. The survey’s measure of prices paid by businesses for inputs eased slightly to 73.0 last month from 74.0 in September.
The prices-paid gauge barely budged, signaling that service firms still face elevated bills for labor, energy, and transportation. Services inflation tends to be sticky and usually cools only when companies lose the ability to pass higher costs on to customers. This dynamic explains why investors remain reluctant to price in quick rate cuts following the Federal Reserve’s decision to leave its benchmark overnight interest rate within the 3.75%-4.00% range.
S&P Global Market Intelligence published contrasting survey figures, reporting a preliminary services PMI of 57.9 against a prior reading of 58.8, and a composite PMI of 55.9 versus a preliminary 57.6 and a prior 58.4. Chief Business Economist Chris Williamson noted that while the October surveys mark a strong start to the fourth quarter with GDP rising at an annualized rate of over 4%, the good news on growth is tainted by a worrying intensification of inflationary pressures and a sharp fall in business optimism across the services sector due to worries relating to affordability and interest rates.
Household finances face concurrent pressures. Disposable income fell in September after remaining unchanged in August, pushing the saving rate to a four-year low of 3.8% as high inflation erodes purchasing power.
US SERVICES GROWTH IS SLOWING. BUT INFLATION PRESSURES ARE STILL TOO HIGH. The latest October PMI data points to an economy that is still expanding, but losing momentum. Both S&P Global and ISM reported weaker services activity, while price pressures remain elevated. THE NUMBERS…
Services Employment Rises as Payrolls Grow
The ISM survey registered a marginal increase in services sector employment, with the index rising to 51.4 from 50.1 in September. This aligns with economist expectations for moderate growth in nonfarm payrolls for October. Economists surveyed by Reuters forecast that the upcoming government employment report will show payrolls advancing by 65,000 in October following an increase of 29,000 in September, with the unemployment rate holding steady at 4.2%.
Expectations ahead of the report called for some loss of momentum in new orders while employment remained near neutral. Economists expect inflation to continue running above the Federal Reserve’s 2% target into 2027, with the central bank anticipated to raise borrowing costs further in December.
Frequently Asked Questions About the October Services PMI
What specific factors caused supplier deliveries to slow down further in October?
The supplier deliveries index rose to 56.7 from 53.2 in September, extending the slowdown in deliveries to 23 consecutive months.
How do the ISM services figures compare with the S&P Global PMI data for October?
The ISM nonmanufacturing PMI dipped to 54.5 from 54.9 in September, showing steady expansion. In contrast, S&P Global reported a preliminary services PMI of 57.9, down from a prior reading of 58.8, and a composite PMI of 55.9 versus a preliminary 57.6 and a prior 58.4, reflecting a sharper drop in business sentiment.
What level is the US household saving rate currently at?
The US household saving rate stands at a four-year low of 3.8% following a drop in inflation- and tax-adjusted disposable income in September.
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