Services PMI® at 50%; September 2025 ISM® Services PMI® Report
News Summary
In September 2025, economic activity in the U.S. services sector remained unchanged, with the ISM® Services PMI® registering 50%, marking the breakeven point between expansion and contraction for the first time since January 2010. The Business Activity Index moved into contraction territory for the first time in over five years, reaching 49.9%, while the New Orders Index remained in expansion but slowed to 50.4%. The Employment Index stayed in contraction for the fourth consecutive month at 47.2%, indicating hiring delays and staff retention challenges. Supplier Deliveries continued to slow for the tenth straight month, rising to 52.6%, suggesting ongoing supply chain inefficiencies. The Prices Index increased for the 100th consecutive month to 69.4%, reflecting persistent inflationary pressures. Multiple respondents explicitly cited tariffs as impacting costs and uncertainty across industries like food products, apparel, electronics, and construction, while demand for Artificial Intelligence (AI) and cloud infrastructure remained very strong.
Background
The ISM® Services Purchasing Managers' Index (PMI®) is a key indicator of the health of the U.S. services sector, compiled from a survey of purchasing and supply executives nationwide. It is a composite index equally weighted by four indicators: Business Activity, New Orders, Employment, and Supplier Deliveries. A PMI® reading above 50% generally indicates expansion in the services economy, while a reading below 50% indicates contraction. Over time, a Services PMI® above 48.6% generally indicates an expansion of the overall economy (GDP). This report reflects data for September 2025, following an August PMI® reading of 52%.
In-Depth AI Insights
What does the Services PMI® hitting exactly 50% (breakeven) signify, especially given the contrasting sub-indices and the broader economic context of tariffs and persistent inflation? - The Services PMI® stalling at 50% indicates a precarious economic balance rather than a clear soft landing. While new orders show expansion, the contraction in business activity and employment points to underlying weaknesses, particularly in the labor market. This suggests a bifurcated economy where strong demand in specific tech sectors (e.g., AI) is offset by broad-based softness across many service industries, leading to narrow and unstable overall growth. - Tariffs and ongoing supply chain challenges are directly translating into higher costs for service sector businesses, eroding profit margins and dampening expansion. These external pressures combine with structural inflation (e.g., rising labor costs) and general economic uncertainty to hinder investment and hiring decisions. How do persistent inflation (Prices Index at 69.4% for 100th month) and slowing supplier deliveries (52.6% for 10th month) reconcile with the overall stagnation in services and contraction in employment and business activity? - This combination strongly points to underlying stagflationary pressures within the economy. Slower supplier deliveries may not solely be driven by robust demand but rather by persistent supply chain inefficiencies or specific component shortages (e.g., advanced semiconductors, power components). The sustained high prices, even amidst weakening demand in many sectors, suggest that inflation has become sticky, driven by factors beyond aggregate demand, such as increasing labor costs (respondents cited 'difficulty finding qualified staff'), rising commodity prices (steel, aluminum), and the direct pass-through of trade policies (tariffs). - This dynamic creates a dilemma for the Federal Reserve in considering monetary easing. Premature rate cuts risk reigniting inflation, while maintaining higher rates could further suppress already contracting business activity and employment, potentially prolonging a period of low growth and elevated inflation. What are the deeper implications of tariffs being explicitly cited by multiple industries (Accommodation & Food Services, Construction, Real Estate, Utilities) as driving cost increases and uncertainty, particularly for the Trump administration's economic narrative? - The widespread and explicit mention of tariffs as a driver of rising costs and business uncertainty directly challenges the Trump administration's 'America First' economic narrative. While tariffs are intended to protect domestic industries, the report indicates they are directly burdening U.S. service sector businesses through increased import costs and supply chain disruptions, ultimately passed on to consumers. This erodes business confidence and investment appetite, especially in interest-rate-sensitive sectors like real estate and construction. - This cost pass-through and uncertainty could prompt companies to shift sourcing and production strategies to less tariff-affected regions (e.g., USMCA partners) but may also imply higher operational costs. It highlights the potential unintended 'boomerang' effects of protectionist policies in a complex global supply chain, where efforts to boost certain sectors may inadvertently harm other critical domestic economic pillars.