The U.S. services sector showed fresh momentum in October, even as hiring struggles continued, signaling mixed conditions for the broader economy. New data released Wednesday by the Institute for Supply Management (ISM) revealed that economic activity in the largest segment of the U.S. economy has reached its highest level in eight months.
The ISM nonmanufacturing purchasing managers index (PMI) climbed to 52.4, up sharply from 50.0 in September and well above expectations. Services industries — responsible for more than two-thirds of U.S. economic activity — are benefiting from solid new orders and continued consumer spending.
Yet the overall picture remains clouded by multiple pressures. Business sentiment captured by the ISM survey remained split, with some respondents citing steady demand while others reported ongoing disruptions tied to tariffs and the federal government shutdown. Import duties were described as continuing to "cause disruption in contracts and contracting, driving up pricing on goods," while other companies said business was “very strong” with “no supply chain or logistical issues.”
Economists warn the survey may mask underlying economic strain. Official data reports remain largely unavailable due to the longest U.S. government shutdown in history, now dragging into its 36th day.
"The survey is more evidence of a disconnect between positive economic growth and meager job growth,"
— Bill Adams, Chief Economist, Comerica Bank
The PMI remains above the 48.6 threshold that indicates overall economic expansion, and 11 industries — including retail trade, utilities, transportation and warehousing — reported growth in October. However, finance and insurance, public administration and construction were among the six sectors reporting contraction.
Hiring remains weak despite stronger demand for services. The services sector employment index rose slightly to 48.2 — still signaling contraction for the fifth straight month. The sector is hesitating to add workers, cautious amid economic uncertainty, tariff pressures, and rising adoption of artificial intelligence.
"The continued contraction in the employment index shows a lack of confidence in the continued strength of the economy,"
— Steve Miller, Chair, ISM Services Business Survey Committee
Economists say workforce reductions tied to immigration enforcement are also dampening labor availability in several industries.
Weak export activity continues to reflect heightened trade tensions. Both the ISM services and manufacturing reports highlighted “ongoing trade friction” impacting orders abroad. The U.S. Supreme Court this week heard arguments over the legality of import duties — a major flashpoint in economic policy.
President Donald Trump maintains that tariffs are needed to protect domestic manufacturing, but businesses warn higher costs are increasingly flowing through supply chains.
Prices paid by services firms rose again, with the index ticking up to 70.0, reinforcing the Federal Reserve’s cautious stance on future interest-rate cuts.
"If you are driving in the fog and looking at this report, the message is to slow down,"
— John Ryding, Chief Economic Advisor, Brean Capital
The government shutdown has halted release of key indicators such as employment and inflation, complicating forecasting and limiting visibility into the economy’s trajectory. The Congressional Budget Office estimates shutdown-related disruptions may trim 1–2 percentage points off fourth-quarter GDP.
Despite October’s uptick in services activity, companies appear cautious:
"Employers aren’t looking to add workers but they aren’t letting go of them in droves either,"
— Oren Klachkin, Economist, Nationwide
Economists expect job conditions to remain mostly unchanged from August — when unemployment hovered near a four-year high of 4.3%.
While demand for U.S. services remains solid, rising input costs, weak hiring, and missing official data leave policymakers navigating uncertainty. With services expansion alone not enough to sustain robust growth, the U.S. economy enters the fourth quarter on uneven footing.
Originally reported by Reuters.
