U.S. services activity expanded at a slower pace in October 2026, while businesses continued reporting substantial cost pressures and longer supplier delivery times, according to the Institute for Supply Management (ISM).
The Services Purchasing Managers’ Index (PMI) fell to 54.5 in October from 54.9 in September, a decline of 0.4 percentage point, according to the October services report released Wednesday, November 4. It marked the 28th consecutive month of expansion in the services sector. Readings above 50 indicate that activity is generally growing, meaning October’s decline reflected slower expansion rather than an outright contraction.
The slowdown came mainly from weaker growth in new orders and business activity. At the same time, the survey’s price index remained above 70, pointing to persistent increases in costs paid by service-sector businesses.
Demand Growth Slows
The New Orders Index declined to 55.9 from 59.8, a 3.9-percentage-point drop. The Business Activity Index fell to 53.8 from 56.5, a decrease of 2.7 percentage points. Both indicators remained above the expansion threshold, but their declines showed that demand and business activity were growing less rapidly than in September.
Employment provided a stronger signal. The Employment Index increased to 51.4 from 50.1, marking its second consecutive month in expansion territory. However, this survey measure indicates the direction of employment conditions among respondents; it does not measure how many jobs the U.S. economy created.
Supplier deliveries also slowed further. The Supplier Deliveries Index climbed to 56.7 from 53.2, indicating longer delivery times. Unlike the other major components, a higher supplier-deliveries reading can reflect either greater demand or supply disruptions.
That distinction matters because supplier deliveries contribute positively to the four-component PMI even when delays reflect supply constraints. The October increase in this component partly offset the weaker new-orders and business-activity readings.
ISM reported expansion in 15 industries, while construction and health care and social assistance reported contraction. The services slowdown contrasted with October manufacturing activity, where the manufacturing PMI rose to 55.5 from 54.5 in September.
Price Pressures Persist
The services Prices Index slipped to 73.0 from 74.0, but remained above 60 for the 23rd consecutive month. October’s reading was also 3.8 percentage points above the index’s 12-month average of 69.2, suggesting that input-cost increases remained widespread despite a slight moderation from September.
ISM identified fuel, diesel, gasoline, petroleum-based products and memory products among items reported as rising in price. Respondents continued identifying tariffs and fuel costs as major supply-chain concerns.
The report also showed the Backlog of Orders Index climbing to 58.0 from 56.6, its highest reading since July 2022, indicating faster growth in unfinished orders. These findings add context to September’s wholesale-price increase, documented separately in the Labor Department’s producer-price release.
Similarly, the latest available import-cost analysis concerns the government’s September import report. Those measures cover different transactions and reporting periods and cannot be treated as interchangeable with ISM’s October survey.
Importantly, an ISM Prices Index reading of 73.0 does not mean prices increased by 73%. It is a diffusion index measuring the breadth and direction of reported price changes, not a consumer inflation rate. The distinction is important when comparing the survey with official consumer inflation measurements.
What Comes Next
The latest services figures present a mixed economic picture: demand growth moderated, employment conditions improved modestly, and business input-cost pressures remained elevated.
The Federal Reserve’s inflation assessment depends on broader economic evidence. The September PCE release showed annual core personal consumption expenditures inflation at 3.1%, a separate measure examined in the September inflation report.
The Federal Reserve maintained its benchmark interest-rate target at 3.75%–4.00% on October 28, as confirmed by its official policy statement. The October Fed decision preceded the ISM services release, and the new survey alone does not establish what policymakers will decide next.
ISM’s next scheduled Services PMI report, covering November 2026, is due Thursday, December 3, at 10:00 a.m. Eastern Time. Until then, the central question is whether slower demand growth begins easing business cost pressures or whether supply constraints keep prices elevated despite more moderate expansion.
