Services sector returns to expansion
Economic activity in the services sector returned to expansion in October, say the nation’s purchasing and supply executives in the latest ISM Services PMI Report. The Services PMI registered at 52.4% and is in expansion territory for the eighth time in 2025.
The report was issued today by Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management (ISM) Services Business Survey Committee: “In October, the Services PMI® registered a reading of 52.4%, 2.4 percentage points higher than the September figure of 50%. The Business Activity Index also returned to expansion territory in October, registering 54.3%, 4.4 percentage points higher than the reading of 49.9% recorded in September. The New Orders Index remained in expansion in October, with a reading of 56.2%, up 5.8% from September’s figure of 50.4% and its highest reading since October 2024 (56.7%) . The Employment Index contracted for the fifth month in a row with a reading of 48.2%, a 1-percentage point improvement from the 47.2% recorded in September.
“The Supplier Deliveries Index registered 50.8%, 1.8 percentage points lower than the 52.6% recorded in September and 0.7 percentage point below its 12-month average of 51.5%. This is the 11th consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance. (Supplier Deliveries is the only ISM® PMI® Reports index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.)
“The Prices Index registered 70% in October, its first time at or above that threshold since a reading of 70.7% in October 2022. The October figure was a 0.6-percentage point increase from September’s reading of 69.4%. The index has exceeded 60% for 11 straight months.
“The Inventories Index registered 49.5% in October, an increase of 1.7 percentage points from September’s figure of 47.8% but in contraction for the second straight month after three months in expansion territory. The Inventory Sentiment Index expanded for the 30th consecutive month, registering 55.5%, down 0.2 percentage point from September’s figure of 55.7%. The Backlog of Orders Index was in contraction territory for the eighth month in a row, registering 40.8% in October, a 6.5-percentage point drop from the September figure of 47.3 percent; this is the index’s second-lowest reading since May 2009 (40%) .
“Eleven industries reported growth in October, one more than in September, while the number reporting contraction decreased from seven to six. The October reading of 52.4% is 0.7 percentage point above the 12-month average of 51.7%. However, the 12-month average is at its lowest level since August 2024 (51.7%) and the second lowest since June 2010 (51.4%) .”
Miller continues, “October’s Services PMI® is a continuation of a downward trend of more than 10 percentage points in the 12-month average since February 2022, when it was 62.6%. The rebounds in both the Business Activity and New Orders indexes in October are positive signs, while the continued contraction in the Employment index shows a lack of confidence in the continued strength of the economy. The Backlog of Orders Index continued its 3½ year declining trend; even with a contracting Employment Index, companies can more than keep up with new orders to reduce backlogs. Respondents continued to mention the impact of tariffs on prices paid. There was no indication of widespread layoffs or reductions in force, but the federal government shutdown was mentioned several times as impacting business activity and generating concerns for future layoffs. In the Health Care & Social Assistance and Retail Trade industries, panelists noted seasonal strength in activity, and comments from many industries mentioned continuing demand stability.”
INDUSTRY PERFORMANCE
The 11 services industries reporting growth in October — listed in order — are: Accommodation & Food Services; Retail Trade; Wholesale Trade; Real Estate, Rental & Leasing; Health Care & Social Assistance; Utilities; Transportation & Warehousing; Agriculture, Forestry, Fishing & Hunting; Information; Professional, Scientific & Technical Services; and Educational Services. The six industries reporting a contraction in the month of October — listed in order — are: Arts, Entertainment & Recreation; Management of Companies & Support Services; Finance & Insurance; Public Administration; Construction; and Other Services.
WHAT RESPONDENTS ARE SAYING
- “Activity is generally flat month-over-month; we are closely monitoring effects of the new tariff announcement.” [Finance & Insurance]
- “Uncertainty due to the federal government shutdown has shuttered many non-essential functions. This will lead to project delays and likely hurt our overall fiscal year 2026 expectations. Our sites are funded through the next couple of months, but if the shutdown continues beyond that time, we will expect mass furloughs of our employees.” [Management of Companies & Support Services]
- “Relatively flat activity levels for oil and gas.” [Mining]
- “Client demand for advisory and compliance services remains solid, particularly as businesses navigate evolving tax legislation and increased regulatory scrutiny. However, we are seeing extended approval cycles on discretionary projects and tighter controls on consulting spend, which is putting pressure on procurement to be more agile and cost-efficient.” [Professional, Scientific & Technical Services]
- “Heightened business activity due to new fiscal year budget. Items made with or utilizing precious metals are up, basic labor is down — though maintaining employees has been more difficult since a return-to-office order was implemented.” [Public Administration]
- “The overall economy continues to provide mixed signals, which makes it difficult to determine how to move forward as a business given the uncertainty.” [Real Estate, Rental & Leasing]
- “Business very strong, no supply chain or logistical issues.” [Retail Trade]
- “General business has been steady, with minimum fluctuation.” [Transportation & Warehousing]
- “Tariffs continue to cause disruption in contracts and contracting, driving up pricing on goods, particularly engineered and manufactured equipment. The backlog of existing orders with delays continues to persist for equipment and manufactured equipment.” [Utilities]
- “Business seems to be picking up. Multifamily is a big driver. I think most projects that have been postponed are finally coming to fruition as lumber prices have found a bottom. The outlook is better with the Fed’s plan to continue with rate cuts. Home prices coupled with elevated interest rates continue to keep a lid on sales. Home affordability is still a bit out of reach for a large portion of potential buyers. [Wholesale Trade]
INDUSTRIAL SUPPLY MAGAZINE
The September/October issue of Industrial Supply magazine features an in-depth cover story about American Producers Supply. Plus, we're featuring articles by contributing writers Dr. Bharani Nagarathnam and Frank Hurtte, as well as interviews with numerous product and distribution industry experts.
