(Click on image to enlarge)

ISM chart and excerpts below by permission from the Institute for Supply Management® ISM®

Please consider the September 2025 Services ISM^® Report On Business^® emphasis mine.

The report was issued today by Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management^® (ISM^®) Services Business Survey Committee: “In September, the Services PMI^® registered an unchanged reading of 50 percent, 2 percentage points lower than the August figure of 52 percent. The Business Activity Index moved into contraction territory in September, registering 49.9 percent, 5.1 percentage points lower than the reading of 55 percent recorded in August. This is the first time the index has entered contraction territory since May 2020.

“The Prices Index registered 69.4 percent in September, a 0.2-percentage point increase from August’s reading of 69.2 percent. The index has exceeded 60 percent for 10 straight months, its longest such streak since 30 consecutive readings above 60 percent from October 2020 to March 2023.

Miller continues, “September’s Services PMI^® level returned to numbers very similar to May and July, with weakness in business activity and continued weakness in employment. The recovery in the Backlog of Orders Index to a reading indicating slower contraction was a positive signal, as was continued expansion in the New Orders index. Commentary in general indicated moderate or weak growth, with more isolated observations of supplier delivery challenges. Employment continues to be in contraction territory, thanks to a combination of delayed hiring efforts and difficulty finding qualified staff.”

A Services PMI^® above 48.6 percent, over time, generally indicates an expansion of the overall economy. Therefore, the September Services PMI^® indicates the overall economy is expanding for the 64th straight month. Miller says, “The past relationship between the Services PMI^® and the overall economy indicates that the Services PMI^® for September (50 percent) corresponds to a 0.4-percentage point increase in real gross domestic product (GDP) on an annualized basis.”

Prices

Prices paid by services organizations for materials and services increased in September for the 100th consecutive month. The Prices Index registered 69.4 percent, 0.2 percentage point higher than the 69.2 percent recorded in August. The September reading is the index’s second-highest since October 2022 (70.7 percent) and its 10th straight month above 60 percent but the 35th in a row below 70 percent.

Fifteen of the 18 services industries reported an increase in prices paid during the month of September, in the following order: Accommodation & Food Services; Management of Companies & Support Services; Public Administration; Information; Construction; Other Services; Health Care & Social Assistance; Professional, Scientific & Technical Services; Transportation & Warehousing; Real Estate, Rental & Leasing; Educational Services; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Utilities; and Wholesale Trade. No industry reported a decrease in prices paid in September.

What Respondents Are Saying

• “We are beginning to see the impact of the tariffs impact our business, particularly for food products from India, China, and Southeast Asia, coffee from South America, and apparel and electronics from Asia. Our year-over-year cost increases are getting progressively greater.” [Accommodation & Food Services]
• “New residential construction continues to struggle in a tough market. Housing values remain high, and tariffs are beginning to be passed through on materials that are metal based. The pace of housing starts has been stagnant to slightly declining, as we head out of the summer building season.” [Construction]
• “Pharmacy costs continue to rise, and medical devices are being held at bay mainly due to contracts and continued negotiations where we have two to three sources for a given product.” [Health Care & Social Assistance]
• “Demand for artificial intelligence (AI) and cloud infrastructure remains very strong. Our primary focus this month was on increasing production throughput to begin clearing the significant order backlog built up over the summer. While new order intake has stabilized at a high level, the overall business outlook remains positive. We are still facing significant supply chain challenges, especially for advanced semiconductors and power components, with lead times remaining extended. Price pressures are still present but have not worsened compared to the previous month.” [Information]
• “Client demand in professional services remains steady, though decision-making timelines are lengthening due to continued economic uncertainty and interest-rate concerns. We are also seeing modest upward pressure on labor costs, which impacts both our internal resourcing and supplier pricing.” [Professional, Scientific & Technical Services]
• “Growing apprehension regarding state efforts to reduce or eliminate property taxes that are a major revenue source for local governments. And continuing concern about future economic conditions, inflation, tariffs and their impact on increased prices.” [Public Administration]
• “The overall housing market remains stagnant, which has forced our company to be hyper-vigilant about costs. However, we are growing and increasing our market share despite the headwinds. Tariffs continue to inject an unnecessary level of uncertainty across the broader economy, and costs are now beginning to increase with the full effect of the tariffs now coming into play.” [Real Estate, Rental & Leasing]
• “Costs overall have stabilized, and we’ve not seen any interruptions in sourcing or shipments.” [Retail Trade]
• “We’ve had more tariff charges last month than in previous months.” [Utilities]
• “Business conditions continue to soften, even in markets that have historically been more resilient. Demand is simply weak.” [Wholesale Trade]

Diffusion Indexes

ISM is a diffusion index with numbers above 50 indicating expansion and below 50 contraction.

A weakness of diffusion indexes is direction matters more than amount. For example, a business hiring 2 people would offset a business firing 300.

Mish Thoughts

Prices are soaring as backlog of orders collapse, imports collapse, export orders contract, employment dives, and business activity is in contraction for the first time since May of 2020.

This smacks of stagflation.

But all we have to do is ask Trump if prices are up 100 straight months are a problem.

He will suggest that ISM is in cahoots with ADP and the BLS to make him look bad.

Related Posts

October 1, 2025: ADP Private Jobs Decline by 32,000 in September, Huge Negative Revisions

ADP revised August from +54,000 to -3,000 making 2 straight months of declines.

September 5, 2025: Jobs Report Misery: Only 22,000 Gain in August, June Revised to -13,000

August was a bad month for job seekers. Here are the grim details.

September 5, 2025: Since January 2023, BLS Jobs Revisions Were Negative 24 Out of 31 Times

Witness negative revisions 77 percent of the time, with more coming.

The BLS jobs report for September was due today. It was delated due to the government shutdown.

So far the bond market is not too concerned over the stagflation outlook.

What? Me Worry? Gold seems to have another view.

More By This Author: