U.S. Service Sector Activity Returns To Expansion In October

(RTTNews) - The Institute for Supply Management released a report on Wednesday showing U.S. service sector activity returned to expansion in the month of October.

The ISM said its services PMI climbed to 52.4 in October after falling to 50.0 in September, with a reading above 50 indicating growth. Economists had expected the index to inch up to 50.8.

With the bigger than expected increase, the services PMI reached its highest level since hitting 53.5 in February.

The rebound by the headline index partly reflected a turnaround by business activity, as the business activity jumped to 54.3 in October from 49.9 in September.

The new orders index also surged to 56.2 in October from 50.4 in September, reaching its highest level since hitting 56.7 in October 2024.

The ISM said the employment index also crept up to 48.2 in October from 47.2 in September, but a reading below 50 indicates the fifth straight month of contraction.

"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," said Steve Miller, Chair of the ISM Services Business Survey Committee.

He added, "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."

The report also said the backlog of orders index was in contraction territory for the eighth straight month, plunging to 40.8 in October from 47.3 in September and hitting its second-lowest reading since May 2009.

"Even with a contracting Employment Index, companies can more than keep up with new orders to reduce backlogs," said Miller.

On the inflation front, the report said the prices index inched up to 70.0 in October from 69.4 in September, reaching its highest level since hitting 70.7 in October 2022.

The ISM released a separate report on Monday showing manufacturing activity in the U.S. unexpectedly contracted at a slightly faster rate in the month of October.

The report said the ISM's manufacturing PMI slipped to 48.7 in October after edging up to 49.1 in September, with a reading below 50 indicating contraction. Economists had expected the index to inch up to 49.5.