US services sector growth slowed in September while a measure of prices businesses pay for inputs jumped to its highest level in more than four years, Institute for Supply Management data showed. Complaints about higher fuel prices tied to the US-Israeli war with Iran dominated survey responses, a combination that could keep inflation elevated into 2027.
US services sector activity slowed in September, and a measure of prices paid by businesses for inputs jumped to its highest level in more than four years, the Institute for Supply Management said Monday, suggesting inflation could remain elevated into 2027. Complaints about higher fuel prices dominated responses to the survey.
The US-Israeli war with Iran has raised prices of energy and related products and led to shortages of commodities shipped through the Strait of Hormuz. Diesel prices are at record highs, hitting farmers and truckers, and economists warned higher prices could soon spread to other sectors.
Services growth undershoots forecasts
The ISM's nonmanufacturing Purchasing Managers' Index fell to 54.9 last month from 55.4 in August, missing the 55.2 reading economists polled by Reuters had forecast. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of US economic activity, and the September level is still consistent with strong third-quarter growth driven by consumer spending and business investment in AI-related infrastructure.
Thirteen services industries reported growth last month, including wholesale trade, utilities, retail trade and finance and insurance. Mining and construction were among four industries reporting a contraction.
Supply chains stay stretched
Supply chains are struggling to keep up, a situation worsened by the Middle East conflict. According to Oxford Economics senior economist Matthew Martin: "the prices index continues to trend markedly higher".
The survey's measure of supplier deliveries rose to 53.2 from 51.3 in August, extending a slowdown that has now lasted 22 consecutive months and pushed up input prices. New orders eased to 59.8 after surging to 60.9 in August, the highest reading since February 2023, while order backlogs climbed to the highest level since July 2022, growing for an eighth straight month.
Input costs climbed too: the ISM's gauge of prices paid for materials and services jumped to 74.0 from 72.6 in August, the highest level since July 2022, with copper, diesel, steel, petroleum-based products and memory products among the commodities that rose.
Rate-hike odds slip
The Federal Reserve raised its benchmark rate by 25 basis points to a range of 3.75%-4.00% last month, its first hike in three years, and flagged further increases ahead. Yet financial markets were pricing in a roughly 26% chance of a rate increase at this month's meeting, down from about 71% a week earlier, CME Group's FedWatch tool showed, as cooler July and August inflation readings and a slowdown in September payroll growth reduced the odds.
Services employment also improved, with the measure climbing to 50.1 from 47.8 in August after two months of contraction, a sign that supported economists' view the labor market remained stable despite weak payroll gains last month.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
