The U.S. services sector showed continued growth in September, but two closely watched surveys disagreed on nearly everything else—from hiring to pricing power to business activity—underscoring deep uncertainty about the economy’s momentum as the year draws to a close.
S&P Global’s U.S. Services PMI registered 54.2, marking its 32nd consecutive month of expansion. The report pointed to robust third-quarter GDP growth of around 2.5 percent, with strength concentrated in financial services, technology, and consumer-facing businesses such as leisure and recreation.
Chris Williamson, chief business economist at S&P Global Market Intelligence, described the quarter as “an impressive performance.”
The Institute for Supply Management painted a starkly different picture. Its Services PMI fell to 50.0, the breakeven point between growth and contraction, marking the weakest reading since January 2010. Business activity slipped into contraction territory at 49.9—the first time since May 2020—while employment contracted for a fourth straight month. ISM Chair Steve Miller said September’s reading “returned to numbers very similar to May and July, with weakness in business activity and continued weakness in employment.”
The divergence highlights a deeper tension in the data: survey measures of sentiment have turned cautious even as hard economic indicators remain strong. The Atlanta Fed’s GDPNow model currently estimates third-quarter growth at 3.8 percent, far above what the gloomier survey readings would suggest. Recent government figures showed personal spending rose 0.6 percent in August, the third straight month of solid gains, with incomes up 0.4 percent. With wage growth outpacing inflation, households have continued spending on travel, restaurants, and recreation despite higher costs for transportation and insurance.
Part of the gap between the surveys stems from what they measure. ISM’s Prices Index, at 69.4, tracks elevated input costs inflated by tariffs on goods ranging from food to electronics. S&P Global, by contrast, measures both input costs and selling prices. It found input costs rising sharply, but selling prices increased at the slowest pace in five months—suggesting firms are absorbing costs rather than fully passing them on, a sign of weaker pricing power.
“Disappointingly, the improvement in business optimism failed to spur more jobs growth, with hiring almost stalling,” Williamson said, calling it a sign of “further labor market malaise.” Still, S&P Global reported business confidence at its highest since May, buoyed by lower interest rates and expectations of pro-growth federal policies.
Export demand also showed signs of life, rising for the first time in six months, though ISM’s export orders remained in contraction.
The disconnect has puzzled market watchers. Research firm RenMac observed that “survey measures of economic activity like this week’s ISMs and weak consumer confidence are not exactly consistent with the strong measures of GDP tracking we’ve seen in Q3.”
For now, September’s readings present a tale of two surveys: one showing robust growth with cooling inflation, the other pointing to near-stagnation under tariff-driven cost pressures. The divergence matters for Federal Reserve officials weighing further interest-rate cuts.
The government shutdown is also adding to the uncertainty about the economy. The Labor Department’s report on payrolls and unemployment was not released Friday and, if the shutdown continues, inflation reports due later this month could be delayed.
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