(Kitco News) – The U.S. service sector weakened further last month with business activity contracting and price pressures ticking higher, while employment remained in contraction, according to the latest data from the Institute for Supply Management (ISM).
The ISM announced on Friday morning that its Services Purchasing Managers Index fell to 50 in September, down from August’s reading of 52. The data was worse than expected, as economists were looking for a reading of 51.7.
Readings above 50 in such diffusion indexes signify economic growth and vice versa. The farther an indicator is above or below 50, the greater or smaller the rate of change. The Services PMI reading of 50 percent was at the breakeven point between expansion and contraction for the first time since January 2010.
“The Business Activity Index moved into contraction territory in September, registering 49.9 percent, 5.1 percentage points lower than the reading of 55 percent recorded in August,” said Steve Miller, chair of the Institute for Supply Management Services Business Survey Committee. “This is the first time the index has entered contraction territory since May 2020.”
“The New Orders Index remained in expansion in September, with a reading of 50.4 percent, down 5.6 percent from August’s figure of 56 percent,” he added. “The Employment Index remained in contraction territory for the fourth month in a row and the fifth time in the last six months; the reading of 47.2 percent is 0.7 percentage point higher than the 46.5 percent recorded in August.”
Gold prices pulled back following the 10 am EDT release. Spot gold last traded at $3,875.63 per ounce for a gain of 0.49% on the daily chart.
“The Supplier Deliveries Index registered 52.6 percent, 2.3 percentage points higher than the 50.3 percent recorded in August and its highest reading since February (53.4 percent),” Miller noted. “This is the 10th consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance.”
Meanwhile, the Prices Index registered 69.4 percent in September, up 0.2 percentage points from August’s reading of 69.2 percent. “The index has exceeded 60 percent for 10 straight months, its longest such streak since 30 consecutive readings above 60 percent from October 2020 to March 2023,” he said.
The Inventories Index dropped into contraction in September after three months in expansionary territory, coming in at 47.8 percent, down 5.4 percentage points from August’s 53.2 percent. “The Inventory Sentiment Index expanded for the 29th consecutive month, registering 55.7 percent, up 0.2 percentage point from August’s figure of 55.5 percent,” Miller said. “The Backlog of Orders Index was in contraction territory for the seventh month in a row, registering 47.3 percent in September, but with a 6.9-percentage point jump from the August figure of 40.4 percent to hit its highest reading since April (48 percent).”
“Ten industries reported growth in September, two fewer than in August, while the number reporting contraction increased from four to seven,” Miller said. “The September reading of 50 percent is 2 percentage points below the 12-month average of 52 percent. The 12-month average figure is the lowest since September 2024 (51.8 percent).”
“September’s Services PMI level returned to numbers very similar to May and July, with weakness in business activity and continued weakness in employment,” he added. “The recovery in the Backlog of Orders Index to a reading indicating slower contraction was a positive signal, as was continued expansion in the New Orders index. Commentary in general indicated moderate or weak growth, with more isolated observations of supplier delivery challenges. Employment continues to be in contraction territory, thanks to a combination of delayed hiring efforts and difficulty finding qualified staff.”
