US September ISM Services PMI at 54.9%...27 Months of Continuous Expansion Maintained

[Mexico City = Shim Young-jae, Correspondent] The US services sector continued its expansion in September. The Purchasing Managers' Index (PMI) for the services sector from the Institute for Supply Management (ISM) was 54.9%, maintaining its expansion territory for the 27th consecutive month. Although the pace of business activity and new orders increased has slowed compared to the previous month, the employment index exceeded 50% for the first time in three months.

ISM announced on the 5th (local time) that the September services PMI was 54.9%, down 0.5 percentage points from August's 55.4%. The business activity index recorded 56.5%, the new orders index was at 59.8%, and the employment index stood at 50.1%. The price index rose to 74%, the highest level since July 2022.

Services PMI at 54.9%...27 Months of Continuous Expansion

According to ISM, the September services PMI was 54.9%, a decrease of 0.5 percentage points from August's 55.4%.

The services PMI has maintained its expansion territory for 27 consecutive months. ISM states that when the PMI is above 50%, it indicates overall expansion in the services sector, while below 50% indicates contraction.

The September figure was 0.8 percentage points higher than the recent 12-month average of 54.1%. The 12-month average rose by 0.4 percentage points from August's 53.7% to 54.1%. The 12-month average has increased for nine consecutive months.

ISM explained that when the services PMI is above 48.1%, it generally aligns with the overall expansion of the US economy. Thus, the September figure indicates that the US economy has been in expansion for 76 consecutive months.

Steve Miller, chair of the ISM Services Committee, stated, "Looking at the historical relationship between the services PMI and the overall economy, the September services PMI of 54.9% corresponds to a real GDP increase of 2.1 percentage points year-on-year."

ISM reported that 13 out of the 18 service sectors experienced growth in September, one more than in August. The growing sectors include wholesale trade, real estate and rental, other services, public administration, retail trade, educational services, utilities, information, transportation and warehousing, finance and insurance, accommodation and food services, health and social assistance, and professional, scientific, and technical services.

Conversely, four sectors, including agriculture, forestry, fishing, hunting, mining, construction, and management and support services, reported contraction.

Business Activity at 56.5% & New Orders at 59.8%...Slower Growth Rate

The business activity index maintained its expansion territory at 56.5% in September. However, it decreased by 5.2 percentage points compared to August's 61.7%. It was also 0.2 percentage points lower than the recent 12-month average of 56.7%.

ISM survey respondents reported an increase in urgent requests related to artificial intelligence (AI) and cybersecurity. Conversely, in the housing market, responses indicated that rising mortgage rates and declining inventory have slowed home sales.

The new orders index fell to 59.8%, down 1.1 percentage points from August's 60.9%. New orders have maintained expansion territory for 16 consecutive months.

The ISM survey indicated that an increase in wholesale orders in preparation for the year-end shopping season led to an overall increase in order volume. However, some sectors reported a decrease in bookings.

Thirteen sectors reported an increase in new orders. The construction sector reported a decline in new orders for two consecutive months.

Employment at 50.1%...Transition to Expansion After Three Months

The services employment index recorded 50.1% in September. This is an increase of 2.3 percentage points from August's 47.8%, surpassing 50% for the first time in three months. It was 47.4% in July.

The September employment index was 1.1 percentage points higher than the recent 12-month average of 49%.

ISM survey respondents reported filling vacancies due to promotions or retirements. Some companies also indicated that they are restructuring their organizations as efficiency increases through the use of AI tools.

Employment increased in seven sectors: accommodation and food services, wholesale trade, educational services, real estate and rental, transportation and warehousing, retail trade, and professional, scientific, and technical services.

Conversely, eight sectors, including management and support services, mining, agriculture, forestry, fishing, hunting, health and social assistance, construction, utilities, finance and insurance, and public administration, reported a decrease in employment.

Miller explained that the increase in the employment index above 50% after three months is likely influenced by increased backlogs of orders, high levels of business activity, and new orders.

Price Index at 74%...Highest Since July 2022

Cost pressures have intensified. The price index rose to 74% in September, up 1.4 percentage points from August's 72.6%. This is the highest level since July 2022, when it was 74.5%.

The price index has remained above 70% for six of the last seven months. It has been above 60% for 22 consecutive months. The recent 12-month average is 69%, up 0.5 percentage points from the previous month, marking the highest 12-month average since March 2023.

Seventeen sectors reported price increases in September. No sectors reported price declines.

According to ISM, only wood and pork products were reported as items with price declines.

Fuel has been mentioned as a price-increasing item for eight consecutive months. Gasoline has also been included in the price-increasing items for eight consecutive months, while diesel has been included for seven consecutive months.

Memory products have seen price increases for nine consecutive months. Oil-related products, steel, copper, and software licenses have also been included in the price-increasing items.

Tariff and Fuel Cost Burden...Supplier Delivery Index at 53.2%

ISM stated that tariffs and fuel costs were frequently mentioned as the most common issues affecting respondents' supply chains. In particular, fuel costs were mentioned twice as often as any other single factor affecting business performance.

Supply chain constraints were also cited as a major concern. Companies reported that supply chain issues affect both delivery times and costs.

The supplier delivery index rose to 53.2%, up 1.9 percentage points from August's 51.3%.

The supplier delivery index is interpreted in contrast to other PMI sub-indices. A reading above 50% indicates that supplier delivery speeds are slowing. This index has remained above 50% for 22 consecutive months.

Respondent companies reported that delays related to tariffs have lengthened supplier delivery times.

In the utilities sector, responses indicated that it has become difficult to source materials, including steel, domestically, leading to an increase in overseas orders.

In wholesale trade, strong demand has reduced manufacturers' capacity to process orders, and responses indicated that prices for copper, aluminum, and polyvinyl chloride (PVC) have been rising weekly.

In the agriculture, forestry, fishing, and hunting sector, high diesel prices have significantly increased transportation costs, and responses indicated that the burden on farms, which use a lot of diesel during harvest season, has grown.

In retail, responses indicated that overseas container shipping rates have doubled, leading to price increases.

Backlog of Orders at 56.6%...New Export Orders at 46.9%

The backlog of orders index rose to 56.6% in September, up 1 percentage point from August's 55.6%.

The backlog of orders has maintained its expansion territory for eight consecutive months. This is the longest continuous increase period since the 26-month expansion that ended in February 2023.

Companies reported that equipment procurement times have lengthened due to tariff impacts, and additional costs are affecting profits. There were also responses indicating that workloads are exceeding personnel.

The new export orders index fell significantly. The new export orders index for September was 46.9%, down 9.4 percentage points from August's 56.3%. This is the first time new export orders have fallen below 50% in eight months.

Retail, health and social assistance, and wholesale trade reported increases in new export orders.

Conversely, six sectors, including accommodation and food services, public administration, information, finance and insurance, professional, scientific, and technical services, and utilities, reported decreases in new export orders.

The imports index was 52.9%, down 3.4 percentage points from August's 56.3%. However, it has maintained its expansion territory for three consecutive months.

Inventory Index at 57.8%...Stockpiling in Anticipation of Price Increases

The inventory index rose to 57.8%, up 1.1 percentage points from August's 56.7%. It has maintained its expansion territory for eight consecutive months.

29% of respondents reported that they do not hold inventory or do not measure it separately. Some companies indicated that they have made additional purchases to stockpile in anticipation of future price increases.

The inventory sentiment index was at 51.7%, down 2.4 percentage points from August's 54.1%. However, it has remained above 50% for 41 consecutive months.

ISM explained that this figure indicates that companies feel their current inventory is somewhat high compared to the levels needed for business operations.

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