ISM services prices paid rise to 74.0, the highest since July 2022

The Institute for Supply Management said Monday that prices paid by services firms rose to 74.0 in September, the highest since July 2022, when the index stood at 74.5. It was 72.6 in August.

Seventeen industries reported paying more, and none reported paying less. ISM said prices have increased for 112 straight months, and that the index has been above 70 for the sixth time in seven months.

The prices index measures how widely costs are rising, not how much. ISM builds it from the managers who buy for services firms: every answer of higher counts in full, and every answer of unchanged counts in half. In September, 50.3% said prices were higher, up from 44.8% in August, and 2.2% said they were lower.

“The high cost of diesel fuel has increased the cost of freight dramatically. The high cost is hard on farmers due to the high use of diesel fuel at harvest. The high cost of crude oil has driven nitrogen (for agronomic use) prices to near record highs,” a respondent in agriculture, forestry, fishing and hunting said.

Fuel is the thread: diesel in freight, crude in fertilizer, and higher costs for overseas containers, with tariffs named alongside. ISM said fuel has been up in price for an eighth straight month.

Steve Miller, chair of ISM’s services survey committee, said fuel costs were mentioned twice as often as any other single issue, and that tariffs were the other problem respondents cited most.

The factory survey on Thursday showed the same pressure. Prices paid there rose to 77.9 from 71.1.

S&P Global’s services survey, out the same morning, showed faster growth. Activity rose to 58.8 from 56.5, the strongest since July 2021. ISM and S&P Global split on how fast services are growing, and they agree on costs. S&P Global said input-cost inflation quickened to the fastest pace since November 2022.

Activity cooled

The headline services index eased to 54.9 from 55.4. Economists polled by Reuters had expected 55.2. This was the 27th straight month above 50.

That headline is an equal-weight average of four indexes, built the same way as the prices index: business activity, new orders, employment and supplier deliveries. Above 50 means expansion on balance. Supplier deliveries is the exception, because a higher number there means deliveries slowed.

Business activity fell 5.2 points, to 56.5 from 61.7. Employment and supplier deliveries rose, so the headline eased by much less. Supplier deliveries rose to 53.2 from 51.3, a 22nd straight month of slower deliveries. ISM says slower deliveries are typical when demand is increasing.

New orders eased to 59.8 from 60.9, a 16th month of growth. New export orders fell to 46.9 from 56.3, below 50 for the first time in eight months. ISM said 39% of respondents do not measure orders from outside the United States, so the drop describes the firms that track that work. Orders across the sector were still growing.

Thirteen industries were expanding and four were contracting, including construction and agriculture.

“Interest rates continue to drive buyers out of the market. Half of buyers walking through the door cannot qualify to purchase,” a respondent in construction said.

Hiring is still split

Employment rose to 50.1 from 47.8, its first reading above 50 in three months. Seven industries reported higher employment and eight reported lower employment.

Miller said the move back above 50 seemed to follow rising backlogs and still-strong business activity and new orders. Backlogs rose to 56.6, the highest since July 2022 and an eighth straight month of expansion.

On Friday, the Bureau of Labor Statistics said payrolls rose by 29,000 in September, a change it called little, and the unemployment rate was 4.2%. July and August together were 60,000 jobs lower than previously reported. The average monthly gain over the prior 12 months was 45,000.

Economists said that rise in services employment, with a rise in factory employment in Thursday’s survey, pointed to a labor market that remained stable despite the weak payrolls.

More industries cut staff than added it. With that split, and with the revisions, we read the index as a market that has steadied rather than recovered.

The chances of a rate increase this month have diminished, after cooler inflation readings for July and August and September’s slow payroll growth. Economists said the services and factory price surveys still pointed to higher inflation ahead, and still supported a Federal Reserve rate increase in December.