WASHINGTON, D.C. – The U.S. service sector continues to demonstrate remarkable resilience, serving as a crucial economic stabilizer despite headwinds facing manufacturing industries. The latest Non-Manufacturing ISM Report On Business reveals that while September saw a modest cooling of activity, the sector maintained its expansion streak for the 116th consecutive month.
NMI Index: Expansion Continues Amid Slowing Momentum
The Institute for Supply Management's Non-Manufacturing Index (NMI) registered 52.6 in September, marking a 3.8 percentage point decline from August's 56.4 reading. While remaining comfortably above the 50-point threshold that separates expansion from contraction, this represents the lowest reading in the past twelve months and sits 4.2 percentage points below the 12-month average of 56.8.
Sector Performance: Growth Prevails Despite Selective Contractions
Thirteen non-manufacturing industries reported growth in September, demonstrating the sector's broad-based strength:
- Infrastructure & Essential Services: Utilities, construction, and resource extraction sectors showed particular vigor.
- Consumer-Facing Industries: Retail trade, accommodation/food services, and healthcare maintained robust activity.
- Business Services: Professional/scientific/technical services, finance, and transportation continued expanding.
Four industries reported contraction: education services, real estate/leasing, wholesale trade, and "other services."
Key Indicators: Mixed Signals Emerge
The report revealed diverging trends among critical sub-indices:
- Business Activity: Fell 6.3 points to 55.2 (122 months of expansion)
- New Orders: Declined 6.6 points to 53.7 (122 months of expansion)
- Employment: Dropped 2.7 points to 50.4 (67 months of expansion)
- Prices: Increased 1.8 points to 60.0 (28 months of increases)
Executive Perspectives: Tariffs Reshape Business Strategies
Industry executives highlighted operational adjustments in response to trade policies:
"We're actively seeking alternative sources to Chinese production," noted one services sector respondent. "While we haven't passed tariff costs to customers yet, all options remain under evaluation."
Expert Analysis: Contextualizing the Slowdown
Tony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee, cautioned against overinterpreting monthly fluctuations:
"August's exceptionally strong numbers were unsustainable. September represents a normalization rather than a trend reversal. The fourth quarter will prove critical for both manufacturing and non-manufacturing sectors."
Labor Market Dynamics: Tight Conditions Persist
Nieves identified workforce availability as a growing concern: "With unemployment remaining low and wage pressures building, labor-intensive service industries face particular challenges in staffing."
Trade Flows: Divergent Trajectories
The report showed imports contracting (49.0) while export orders expanded (52.0). Nieves attributed the import decline to fiscal year-end effects and pre-tariff inventory adjustments.
Outlook: Vigilance Required
While dismissing immediate recession concerns, Nieves emphasized monitoring several risk factors: "Absent any economic bubbles, our primary focus remains trade policy resolution and consumer confidence heading into the holiday season."
Conclusion: Resilient but Not Immune
The September report paints a picture of a service sector maintaining its role as economic stabilizer, though facing mounting challenges from labor constraints, trade uncertainties, and moderating demand. As the U.S. economy enters a critical fourth quarter, the non-manufacturing sector's performance will serve as a key indicator of broader economic health.