U.S. ISM Services Index (October 2025)

ISM services moves further into expansionary territory in October

• The ISM Services index reversed September's slide, increasing from 50.0 to 52.4 in October. The number of industries reporting growth last month increased to 11 out of 18, compared to 10 in the month prior.
• The recovery in the headline measure was matched by a rebound in new orders, which increased by 5.8 points to 56.2, after falling almost the same amount the month prior. The business activity sub-indexes showed a similar reversal. 
• Last month's silver lining was the sharp increase in the backlog of orders index. This, too, was reversed, becoming the dark cloud in a relatively sunny report. The backlog of orders index fell 6.5 points to 40.8, putting it back where it was in August. 
• The employment and new export orders indexes both improved, but remain in contractionary territory. The prices index also increased somewhat, and remains elevated.

Key Implications

• Looking at this report over the span of two months rather than just last month, most indicators are now close to their readings in August. As a result, we return to our focus at that time, which was the relative weakness of the employment index. It is one of the few sub-components showing a trend of increasing over the past several months, rather than see-sawing up and down like the activity and demand measures. But it remains weak and is only improving slowly, so we think this reading is a sign that there is still softening in the labor market. 
• Some respondents point to disruptions in their operations from both tariffs and the government shutdown. Industries with exposure to the public sector, such as consulting, professional, and management services, are seeing a negative impact from the government shutdown. Notably, however, the sentiment from wholesale and retail trade is generally positive, with respondents pointing to strong and increasing business, in part due to the rate cuts. This means that more consumer-exposed parts of the service sector are faring relatively better. 

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