US services sector cools in September, price pressures building

In September, the US services sector activity slowed down, as reported by the Institute for Supply Management (ISM) survey. Strong domestic demand, however, strained supply chains, resulting in a higher measure of prices paid by businesses for inputs, which reached its highest level in over four years. Fuel prices, particularly diesel, were cited as a major concern by respondents, causing supply chain stress and longer lead times.

Despite the slowdown in services sector activity, the economy remains driven by robust domestic demand, mainly consumer spending and business investment in AI and related infrastructure. Some analysts argue that rising price pressures could lead to further Federal Reserve interest rate hikes, which may have been delayed due to weaker-than-expected inflation readings and a slowdown in nonfarm payroll growth.

The ISM's nonmanufacturing Purchasing Managers' Index fell to 54.9 in September, still indicating growth in the services sector, whereas the overall economy continues to expand.