The US services sector experienced a significant surge in growth during the month of September, according to the latest ISM Services index. The index rose to 54.9, up from 51.5 in August, surpassing expectations of 51.7. This marks the third consecutive month of improvement and the highest reading since February 2023. Out of eighteen industries, twelve reported growth in September, a notable increase from the ten in August.
The strong performance was driven by substantial gains in both business activity, which rose to 59.9 from 53.3, and new orders, which increased to 59.4 from 53.0. Additionally, the prices paid sub-component also saw an uptick to 59.4 percentage points from 57.3 in August, exceeding its 2019 average. This indicates an increase in input costs. Moreover, the supplier deliveries sub-index shifted to 51.2 from 49.6, pointing to longer supplier delivery times.
However, the employment sub-component declined to 48.1, signaling a contraction in employment for the sixth time this year. Despite the strong demand indicators, the shrinking payrolls remain a concern.
The resurgence of the services sector in September is a positive sign for the economy, driven by increased activity and growing order books. While the robust performance is unexpected at this stage of the economic cycle, the declining employment numbers pose a challenge. Furthermore, the rise in input prices, especially with the ongoing dockworker strike, could impact inflation levels.
The latest report indicates that the economy is still moving forward, supported by strong demand in the services sector. Looking ahead, the Federal Reserve’s focus on prices and labor market developments will be crucial. More clarity on the labor market situation is expected from the upcoming jobs report for September, scheduled for release on Friday. As the Fed aims for a soft landing, pockets of growth like the one seen in the services sector are encouraging signs.
In conclusion, while the services sector showed remarkable growth in September, concerns about employment and inflation persist. The overall resilience of the economy, coupled with positive demand trends, bodes well for future growth. Monitoring the labor market and inflation will be key in determining the Fed’s next steps to ensure a stable economic environment.
