ISM services index eases to 54.5% as orders cool and prices stay high

U.S. services companies kept expanding in October, but new orders cooled and prices barely eased. The Institute for Supply Management (ISM) said Wednesday, in its October services report, that the services index registered 54.5%, down from 54.9% in September.

Economists polled by Reuters had expected 54.8%. A reading above 50 means more purchasing managers reported expansion than contraction. October was the 28th straight month above that line, and the lowest reading since July, when the services index stood at 54.1%.

ISM's manufacturing index, released Monday, moved the opposite way, to 55.5% from 54.5%.

Prices paid stayed high

The prices index registered 73%, 1 percentage point below September's 74%. A number above 50 on this reading means more purchasing managers reported paying more than paying less. Prices have increased for 113 straight months.

Steve Miller, chair of ISM's Services Business Survey Committee, said tariffs and fuel costs were still the issues respondents cited most. Many, he said, had not yet seen the full cost, or had not passed it on.

"This indicates that more pricing pressure is on the way if oil and tariff cost impacts are not mitigated, even if they do not increase from current levels," he said.

"Fuel prices are impacting many of our consumables and delivered goods. This has reduced margins, as we have not passed the expense to our customers because we believe it will be a short-term condition," a respondent in the information industry said.

Slower deliveries count as expansion

The services index gives equal weight to four readings: business activity, new orders, employment and supplier deliveries. New orders fell to 55.9% from 59.8%, and business activity fell to 53.8% from 56.5%. Both stayed above 50. Employment rose to 51.4% from 50.1%, a second month above 50.

Supplier deliveries are the exception. ISM counts a reading above 50 as expansion, but that number means deliveries slowed, which the report says is "typical as the economy improves and customer demand increases." The reading rose to 56.7% from 53.2%.

The backlog of orders rose to 58% from 56.6%, the highest since 58.3% in July 2022.

"The Employment Index's second consecutive reading above 50 percent may indicate help is on the way for slowing supplier deliveries and increasing order backlogs," Miller said.

Stocks rose on the U.S. midterm results

The services survey came out at 10 a.m. Eastern time. At 4:24 a.m., Dow Jones reported that U.S. stock futures had turned higher after Democrats won Tuesday's U.S. midterm elections, and listed the services survey among the data still to come.

CNBC later reported that Democrats had won majorities in both the House of Representatives and the Senate, and that President Donald Trump had said he was willing to accept the results. It said stocks rose because that victory, and his willingness to accept it, removed political uncertainty.

At 12:21 p.m. Eastern time, the S&P 500 was up 1.8% from Tuesday's close. CNBC's account of the rally, updated at that time, did not mention the survey.