Dive Brief:
- The U.S. services sector grew at a slower pace in October than in September, impeded by higher costs from tariffs and the ninth straight month of rising fuel prices, the Institute for Supply Management said Wednesday.
- ISM’s Services PMI index dipped last month to 54.5%, 0.4 percentage points lower than in September, Steve Miller, chair of the institute’s services business survey committee, said in a statement. Fifteen industries — including transportation and warehousing, and wholesale trade — reported growth, while two — construction, and health care and social assistance — indicated a pullback, he said.
- “Tariffs and fuel cost impacts continued to be the most-cited issues impacting respondents’ supply chains,” Miller said. “Many respondents indicated they are not yet seeing the full impact of these cost escalations or have not passed them through to customers. This indicates that more pricing pressure is on the way if oil and tariff cost impacts are not mitigated,” he said.
Dive Insight:
The services industry — which generates about 76% of economic growth — has faced a one-two punch from inflation, first from import taxes imposed by President Donald Trump in April 2025 and then from a surge in fuel prices since February, when U.S. and Israeli warplanes launched strikes against Iran.
In one measure of inflationary pain, the price for a barrel of Brent crude oil has surged 50% during the past year to $95.17.
Service companies face vexing price increases beyond fuel and other commodities, Miller said.
“Memory products were reported as up in price for the 10th month in a row, and memory components were reported as in short supply,” he said, highlighting persistent demand for the technology essential for the buildout of artificial intelligence.
S&P Global also noted a slight slowing in the services sector, reporting on Wednesday that its U.S. Services PMI last month fell to 56.1 from 58.8 in September.
“Business optimism fell sharply across the vast services sector in October, reflecting worries relating to affordability, interest rates and the uncertain political environment,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.
The pace of orders slowed and confidence in the economic outlook slumped to a five-month low, Williamson said.
“Average prices charged for services, meanwhile, rose at one of the fastest rates seen over the past four years,” he said.
“Combined with a jump in goods prices tracked by the October manufacturing PMI survey, the overall signal is for inflation to rise further above the Fed’s target in the coming months,” Williamson said, referring to the Federal Reserve’s 2% goal for inflation.
ISM quoted several services sector executives worried about price pressures.
“Fuel prices are impacting many of our consumables and delivered goods,” an executive in the information industry told ISM. “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 retailer responding to the ISM survey was more blunt: “Tariffs are causing havoc with international merchandise sourcing.”
