US Services Sector Slows as Inflation Pressures Mount

The U.S. services sector saw a slight slowdown in September, according to the latest data from the Institute for Supply Management (ISM). The ISM non-manufacturing business activity index fell to 54.9 from 55.4 in August, still indicating growth but reflecting rising input costs and inflation risks. Economists had anticipated a reading of 55.2, highlighting the persistent challenges facing businesses.

Strong domestic demand continues to drive expansion, but supply chain strains are adding to price pressures. The services new orders index dropped to 59.8 from 60.9 in August, its highest point since February 2023. The U.S.-Israeli war against Iran has exacerbated these issues, causing energy price hikes and shortages of goods transported through the Strait of Hormuz.

Company costs are climbing as deliveries slow, with the supplier deliveries index rising to 53.2 from 51.3 in August. This marks the 22nd consecutive month of delivery slowdowns, contributing to higher business expenses. The index of prices companies pay for resources also increased to 74 from 72.6 in August, signaling ongoing inflationary risks.

Despite these pressures, the services employment index improved to 50.1 in September from 47.8 in August, suggesting a modest increase in hiring. The Federal Reserve raised its benchmark short-term interest rate by 0.25 percentage points in September, to a range of 3.75% to 4.00%, signaling potential further hikes. Inflationary pressure remains a key factor in future interest rate decisions.