Services Sector Expansion Accelerates To Fastest Pace Since 2023

The U.S. services sector expanded in September at the fastest pace in nearly two years, driven by a flurry of orders and stronger business activity.

The Institute for Supply Management’s index of services rose 3.4 points to 54.9 last month, data released Thursday showed. Readings above 50 indicate expansion.

The reading exceeded even the most bullish estimates from Wall Street economists.

The measure of orders rose 6.4 points, the most since the start of 2023. The output gauge rose 6.6 points to 59.9 but the employment metric slipped, the first contraction in three months.

The prices-paid index climbed 2.1 points to 59.4, indicating rising inflationary pressures.

“The stronger growth indicated by the index data was generally supported by panelists’ comments; however, concerns over political uncertainty are more prevalent than last month. Pricing of supplies remains an issue with supply chains continuing to stabilize; one respondent voiced concern over potential port labor issues,” Steve Miller of ISM said in a statement.

The figures suggest that despite weakness in the manufacturing sector, the U.S. economy is not near a recession. The ongoing strength of the services sector, as well as stubborn inflationary pressures, may convince the Fed to lower interest rates at a slower pace than the market currently expects.