The Institute for Supply Management’s Services PMI registered 54.9 in September 2026, down from 55.4 in August, marking 27 consecutive months of expansion in the U.S. services sector. The bigger change was in costs: the ISM Services Prices Index rose to 74.0, a level last seen in July 2022.
Key Takeaways
- The Services Prices Index rose 1.4 points to 74.0 and has stayed above 70 in six of the last seven months.
- The Employment Index rose 2.3 points to 50.1, its first reading above 50 in three months.
- The Business Activity Index fell 5.2 points to 56.5, while New Orders eased to 59.8.
- The Backlog of Orders Index rose to 56.6, and respondents’ backlog comments point to the most growth since July 2022.
- New Export Orders fell 9.4 points to 46.9, contracting for the first time in eight months.
- Thirteen of 17 tracked services industries reported growth. Construction, Mining, Agriculture, and Management of Companies and Support Services reported contraction.
The Headline Number Hides a Cost Problem
A 54.9 reading still points to steady growth. ISM says that level, based on past patterns, corresponds to about 2.1% annualized growth in real GDP, and it is 0.8 points above the index’s 12-month average of 54.1. The 12-month average has risen for nine straight months, so the services expansion has been strengthening over the past year.
The Prices Index tells a different story. At 74.0, it has been above 60 for 22 consecutive months, and its 12-month average rose to 69.0, the highest since March 2023. In September, 50.3% of respondents reported paying higher prices and only 2.2% reported lower prices. All 17 industries ISM tracks reported higher prices paid, and none reported a decrease.
For service businesses with fixed contracts or prices that are hard to raise, that gap matters. Demand is still growing, but input costs are rising faster than at any point in more than four years.
Fuel and Freight Costs Drive the Pressure
Steve Miller, who chairs ISM’s Services Business Survey Committee, said fuel costs came up twice as often as any other issue affecting respondents’ businesses. Fuel was reported as rising in price for the eighth straight month, and diesel and gasoline were also on the list of rising costs. That matches consumer data: AAA reported that September 2026 set a record for average gas prices for that month, at $4.33 a gallon.
Other rising costs included copper, steel products, memory chips, software licensing, and labor. Seven commodities were reported in short supply, including computers and related products, solid-state drives, switchgear, and wire and cable. A retail respondent said overseas shipping containers now cost twice as much as before, and a wholesale respondent described weekly price increases on copper, aluminum, and PVC products.
Respondents also cited tariffs as a major supply-chain issue, affecting both lead times and costs. The Supplier Deliveries Index rose to 53.2, showing slower deliveries for the 22nd straight month.
Hiring Returns to Growth, Barely
The Employment Index rose to 50.1 from 47.8, which ISM linked to growing backlogs and still-solid activity. However, only seven industries reported adding staff, while eight reported cuts. The seven adding workers were Accommodation and Food Services, Wholesale Trade, Educational Services, Real Estate, Transportation and Warehousing, Retail Trade, and Professional Services.
Respondents gave mixed reasons. Some said they were filling jobs left open by promotions or retirements. Others said they were restructuring because AI tools had made their operations more efficient. That fits the Bureau of Labor Statistics report from October 2: payrolls rose only 29,000 in September, and unemployment rose to 4.2%.
For small businesses, a backlog index of 56.6 combined with an employment index near 50 means work is coming in faster than companies are hiring. One respondent said the workload was more than their staff could handle.
Construction and Real Estate Show the Effect of Rate Pressure
Construction contracted on several measures. It was the only industry to report lower new orders for the second month in a row, and it also reported lower business activity, employment, and backlogs. A construction respondent said interest rates are pushing buyers out of the market and that half of prospective buyers cannot qualify for financing.
That is consistent with Freddie Mac’s October 1 survey, which put the average 30-year fixed mortgage rate at 7.28%, up from 6.34% a year earlier. A finance and insurance respondent said competition for deposits and higher funding costs are squeezing profits and lowering growth expectations.
Manufacturing Shows Similar Trends
ISM’s Manufacturing PMI, released October 1, was 54.5, nearly unchanged from 54.6 in August. Manufacturing new orders rose to 55.3 from 53.7, and manufacturing employment rose to 52.7. The Manufacturing Prices Index jumped 6.8 points to 77.9.
Both reports show the same pattern: demand is holding up, deliveries are slower, and cost pressures are rising in both goods and services.
What the Report Means for Fourth-Quarter Planning
The September ISM data points to three things for business owners. First, input costs are rising faster than at any point since mid-2022, so pricing and contract terms deserve a review before year-end renewals. Second, growing backlogs with flat hiring suggest capacity may be tight in the fourth quarter. Third, businesses that depend on export demand or interest-rate-sensitive buyers are seeing a slowdown that the strong headline PMI does not show.
The next ISM Services PMI, covering October data, will be released on Wednesday, November 4, 2026.
FAQs
What Was the ISM Services PMI for September 2026?
The ISM Services PMI was 54.9 in September 2026, down from 55.4 in August. It was the 27th consecutive month above 50, the line that separates growth from contraction.
What Does the ISM Services Prices Index Measure?
The Prices Index tracks whether services businesses are paying more or less for materials and services. September’s reading of 74.0 means far more respondents reported higher prices than lower prices.
Is Services Sector Hiring Growing?
Slightly. The Employment Index rose to 50.1 in September, just above the growth threshold, after two months below 50. Seven industries reported adding staff and eight reported cuts.
Which Services Industries Contracted in September 2026?
Agriculture, Forestry, Fishing and Hunting; Mining; Construction; and Management of Companies and Support Services reported contraction.
When Is the Next ISM Services PMI Report?
The October 2026 ISM Services PMI will be released at 10:00 a.m. ET on Wednesday, November 4, 2026.
