U.S. ISM Services Index (September 2025)

ISM services surprises with a large slide in September

• The ISM Services index dipped sharply from 52.0 to 50.0 in September, going sharply against expectations for roughly no change from last month. The number of industries reporting growth in September fell to 10 out of 18, compared to 12 in the month prior.
• The pullback in the headline measure was driven by a 5.6-point fall in new orders (to 50.4), which had spiked by almost the same amount in last month's report. The business activity/production and imports indexes also registered pullbacks that were greater than 5 points, painting a weak picture of demand. 
• There was a major silver lining in the measure of backlog of orders, which increased 6.9 points to 47.3. However, this still leaves the measure in contractionary territory.
• The prices paid index remained elevated and ticked up only 0.2 points to 69.4, still among the highest levels since late 2022.

Key Implications

• The sudden fall in today’s ISM report indicates that activity in the services sector expanded at the same pace in September compared to August, while expectations had been for August's gains in the index to be maintained. The reversal of last month's surge in new orders and sharp fall in business activity point to more fundamental weakness in the service sector. Like the manufacturing report earlier this week, this report gestures in the direction of an economy that is showing signs of slowing. 
• With the Federal Reserve potentially having to deliberate with less data than usual, the importance of the ISM index has increased. This report will help firm expectations for the Federal Reserve to continue cutting at its next meeting. The softening of business activity and new orders, combined with the prices index remaining flat and employment remaining in contractionary territory, all strengthen the case for another rate reduction. 

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