The latest ISM (Institute for Supply Management) services report sheds light on the forces sustaining US service sector expansion despite tariff uncertainties and geopolitical tensions. November marked the second consecutive month of growth, offering insights into both current conditions and future trends.
Services PMI Expansion: An Economic Stabilizer
The November Services PMI reached 52.6, slightly above October's 52.4 reading. With values above 50 indicating expansion, this confirms steady growth following September's flat 50 reading. Notably, the current figure exceeds the 12-month average of 51.7, demonstrating sector resilience after 13 prior months of uninterrupted expansion.
However, underlying component indices reveal structural complexities that warrant closer examination.
Component Analysis: The Growth Paradox
- Business Activity/Production: At 54.5 (+0.2% monthly), this marks the seventh time in 2025 the index surpassed 54, with 11 industries reporting increased activity. While signaling robust output, sustainability concerns persist.
- New Orders: Declining 3.3% to 52.9, this represents the sixth straight contraction despite slower contraction rates. While 12 industries reported order growth, weakening demand signals potential future slowdowns.
- Employment: The 48.9 reading (+0.7%) shows continued contraction but at decelerating rates - the highest since May. Only six industries reported hiring increases, reflecting persistent labor challenges.
- Supplier Deliveries: Jumping 3.3% to 54.1, this 12-month slowing trend accelerated, with nine industries reporting delayed deliveries - indicating both strong demand and ongoing supply chain pressures.
Sector Performance: Diverging Trajectories
Expanding Industries: Retail trade, arts/entertainment, hospitality, wholesale trade, healthcare, education, public administration, agriculture, finance, information services, professional services, and utilities all showed growth - reflecting sustained consumer spending and service demand.
Contracting Sectors: Construction, real estate, mining, management services, and transportation faced declines, potentially tied to housing market cooling, energy sector challenges, and logistical bottlenecks.
Expert Perspective: Tariffs and Uncertainty
ISM Services Business Survey Committee Chair Steve Miller noted the PMI's stability post-summer volatility, highlighting improvements in employment, orders, and deliveries. Survey respondents expressed particular concern about tariffs and business conditions:
A wholesale trade executive anticipated sustained demand but noted affordability pressures and expected margin compression from competitive pressures, alongside projected lumber price hikes from reduced production.
A hospitality sector respondent reported inconsistent tariff-related pricing from suppliers, describing procurement uncertainty levels matching pandemic-era volatility.
Miller observed that while tariff discussions have decreased 60% since summer, the November PMI broke a 2009-era pattern of inconsistent performance. He characterized current conditions as "fairly normal" despite geopolitical uncertainties, though noting the 12-month average PMI sits at its lowest since 2010 - indicating slower growth than recent years.
Outlook: Navigating Challenges and Opportunities
The ISM report paints a nuanced picture of US services - stable expansion coexisting with structural vulnerabilities. Key challenges include:
- Inflationary pressures on consumer purchasing power
- Labor shortages constraining growth
- Persistent supply chain disruptions
- Geopolitical risks affecting investment decisions
Conversely, potential growth drivers include:
- Technology-driven efficiency gains
- Demographic shifts boosting healthcare demand
- Globalization opportunities
Sector participants may benefit from strategic technology investments, supply chain diversification, customer-centric service models, and agile adaptation to market shifts. While growth continues at moderated pace, proactive measures could strengthen the service sector's role as an economic cornerstone.