US Services Sector Growth Brakes; Prices Paid Measure Edges Higher

US Services Sector Faces Slower Growth in October

As reported by Nancy Smith of Reuters, the Institute for Supply Management (ISM) data showed the services sector Purchasing Managers’ Index (PMI) dropping to 49.1 in October from 52.2 in September, indicating a contraction as readings below 50 indicate shrinking activity. Smith explained, "The decline marked the first contraction since early in the year, reflecting a sharper slowdown in customer demand and continued uncertainty tied to the US government shutdown."

Similarly, John Lee of Bloomberg highlighted that the slowdown was driven by weak new orders and softer employment conditions, although some subsectors like healthcare and education maintained small gains.

Inflation Concerns Rise Despite Cooler Growth

While overall growth decelerated, the ISM Prices Paid Index rose modestly to 60.4 from 59.2, signalling businesses faced higher input costs despite weakening demand. As detailed by Elena Martinez of The Wall Street Journal, "The sticky inflation in prices paid illustrates how supply chain pressures and wage inflation continue to challenge companies’ profit margins."

Elena further noted that companies passed on some of these higher costs to customers, but this trend may be constrained if demand remains weak.

Business Confidence and Employment Trends Show Mixed Signals

According to the analysis by Todd Green of CNBC, business confidence remained cautious with the ISM’s Business Activity Index falling alongside PMI, while employment indices suggested slower hiring or layoffs in some service sectors. "We’re seeing a more cautious approach to staffing as firms digest both economic and regulatory uncertainties," Green reported.

Impact of Government Shutdown on Data and Activity

The ongoing US government shutdown has contributed to data disruptions and uncertainties across economic indicators. As reported by Mark Phillips of Yahoo Finance, delays in federal data releases have complicated assessments of the labour market and consumer spending. "Shifts in economic activity coincide with a broader backdrop of political gridlock," Phillips wrote.

The shutdown has also impacted government contracts and services that support parts of the services economy, contributing to sectoral weakness.

Responses From Economic Experts

Dr. Anna Robertson, chief economist at TD Economics, explained in her recent commentary that the services sector slowdown was expected amid the cumulative effects of monetary tightening, pandemic recovery fade, and fiscal uncertainty. She emphasised, "Policymakers should closely watch price pressures that remain elevated, as they could shape Federal Reserve decisions on interest rates going forward."

Meanwhile, James Cooper, strategy head at Capital Markets Advisors, tweeted that "The services slowdown indicates that consumers and businesses are recalibrating their spending in the face of price and wage pressures, but headline inflation remains stubborn."

Outlook for US Economy and the Federal Reserve

Looking ahead, economists predict that if inflationary pressures ease and political uncertainty diminishes, the services sector could stabilise in coming months. However, significant risks remain, particularly if the government shutdown extends and impacts consumer and business sentiment further.

The Federal Reserve is expected to factor in these mixed signals as it plans its upcoming monetary policy meetings, balancing between controlling inflation and supporting growth

This comprehensive report compiles and neutrally presents key facts and expert commentary on the October 2025 US services sector performance from Reuters, Bloomberg, The Wall Street Journal, CNBC, Yahoo Finance, and leading economists. It adheres to journalistic standards for balanced reporting without editorial bias.