U.S. Services Sector Growth Continues Amid Mixed Economic Signals
The U.S. services sector continued to grow in September, but other important indicators—like employment and overall business activities—raise questions about the economy’s momentum as the year wraps up.
S&P Global’s US Services PMI came in at 54.2, marking the 32nd month of growth. This suggests a GDP increase of about 2.5% for the third quarter, with a focus on consumer-driven sectors like financial services, technology, and recreation.
Chris Williamson, S&P Global’s chief business economist, described this performance as “impressive.”
However, the Supply Management Institute provided a contrasting perspective. Its service PMI dropped to 50.0, the threshold between growth and contraction, reflecting its lowest reading since January 2010. Additionally, business activity dipped into contraction, hitting 49.9 for the first time since May. ISM Chairman Steve Miller noted that the September figures echoed trends from earlier in the year, pointing to ongoing weak business activity and dwindling employment.
This divergence reveals deeper tensions within the data. Sentiment has turned cautious even as some economic indicators remain strong. The Atlanta Fed’s GDPNOW model currently estimates third-quarter growth at 3.8%. Recent government data indicate personal spending rose by 0.6% in August, continuing a trend of solid profits for three months in a row, with revenues also increasing by 0.4%. Even with rising transportation and insurance costs, households are still spending on travel and dining, thanks in part to wage growth outpacing inflation.
Part of the discrepancy between the two studies stems from what they measure. ISM’s price index stands at 69.4, reflecting higher input costs inflated by tariffs on various goods. On the other hand, S&P Global takes into account both input costs and selling prices, revealing that while input costs are sharply rising, selling prices have seen their slowest increase in five months. This suggests that companies are absorbing some costs rather than passing them on, indicating weaker pricing power.
Williamson noted that while business optimism is improving, it hasn’t translated into job growth, which is stagnating. Still, S&P Global reported its highest business confidence since May.
There are also signs of renewed export demand, which increased for the first time in six months, although ISM’s export orders continue to show contraction.
This disconnect is causing confusion among market observers. Research firm Renmac commented that the findings don’t align well with either ISM’s economic activity scale or the strong GDP tracking seen for Q3.
As it stands, the September reports tell a dual story. One suggests robust growth alongside easing inflation, while the other indicates near stagnation due to tariff-induced cost pressures. This divergence is critical for Federal Reserve officials deliberating further interest rate cuts.
Compounding these uncertainties are recent government shutdowns. The Labor Department’s report on wages and unemployment was not released as scheduled, and the upcoming inflation report may also face delays if the closure persists.
