Economic engine stalls? The U.S. September Services PMI falls to the threshold level for the first time in nearly 15 years, with price pressures remaining high

According to the Zhitong Finance APP, on Friday, the U.S. Institute for Supply Management (ISM) released data showing that U.S. service sector economic activity unexpectedly stagnated in September, with the services PMI index at 50, down 2 percentage points from August. This marks the first time since January 2010 that the services PMI has fallen to the neutral line, indicating that the industry is at a critical point between growth and contraction. The service sector dominates the U.S. economy, contributing approximately three-quarters of the country's GDP according to official statistics. According to ISM, a services PMI above 48.6 typically corresponds to overall economic expansion; therefore, despite the decline in September data, the U.S. economy has maintained growth for 64 consecutive months, although the growth rate has significantly slowed.

The report shows that the business activity index fell to 49.9 in September, a substantial decrease of 5.1 percentage points from August's 55, marking the first entry into the contraction zone since the COVID-19 pandemic hit in May 2020. Respondents generally reported only slight growth in daily goods sales, with a noticeable decline in export demand.

The new orders index remained in the expansion zone but dropped significantly to 50.4, a month-on-month decline of 5.6 percentage points. ISM noted that this is the 31st time in the past 33 months that it has remained in the expansion zone, but the growth rate has clearly slowed. Some respondents indicated that due to high interest rates, buyer sentiment has become more cautious, with many consumers delaying new home purchases while their old homes remain unsold.

The employment index has been in the contraction zone for the fourth consecutive month, recording 47.2, a slight rebound of 0.7 percentage points from August. Companies reported an increase in employee turnover rates, and due to cost and market uncertainties, some positions have been postponed for re-hiring. Additionally, artificial intelligence has improved productivity in some industries, creating a substitution effect on traditional hiring demands.

The supplier delivery index rose to 52.6, an increase of 2.3 percentage points from August, indicating that supplier delivery speeds have slowed, reaching the highest level since February of this year. ISM explained that this index is a reverse indicator; a reading above 50 indicates slower deliveries, which typically means increased demand or supply chain tightness.

The price index remained high, recording 69.4 in September, a slight increase of 0.2 percentage points from August, indicating that cost pressures in the service sector remain prominent. This index has been above 60 for 10 consecutive months, marking the longest high-level cycle since the 30 months from October 2020 to March 2023.

The inventory index shifted from expansion to contraction, recording 47.8, a month-on-month decline of 5.4 percentage points, the lowest level since January of this year. ISM noted that some companies reduced inventory in anticipation of falling commodity prices to avoid high inventory risks. Meanwhile, the inventory sentiment index has shown "excessive inventory levels" for the 29th consecutive month, with a September reading of 55.7, indicating that companies still have concerns about relative inventory demand.

Although the backlog index remains in the contraction zone, it significantly rebounded to 47.3, jumping 6.9 percentage points from August, reaching the highest level since April of this year, indicating a slowdown in the contraction pace. ISM believes this is a positive signal for the market.

Among the 18 major service industries, 10 sectors achieved growth in September, a decrease of 2 from August. Growing industries include accommodation and food services, healthcare, information services, public administration, education, wholesale trade, finance and insurance, transportation and warehousing, and utilities At the same time, seven industries, including mining, agriculture, construction, professional and technical services, retail, and real estate leasing, have shown contraction, indicating that real estate and related industrial chains remain a drag on the economy.

In terms of prices, the prices of aluminum products, copper, steel, valves, computers, and peripherals have risen; while the prices of diesel, gasoline, and timber have decreased. The construction industry continues to face a labor shortage, which has been listed as a scarce resource for September.

Steve Miller, chairman of the ISM Services Survey Committee, pointed out in the report: "The September services PMI has returned to levels similar to those in May and July, with weak business activity and continued pressure on employment. Notably, the rebound in the backlog of orders index indicates a slowdown in the pace of contraction, and new orders remain in the expansion range, which is a positive signal. However, overall, businesses generally report moderate or weak growth momentum, and some industries still face challenges in supplier deliveries."

Miller further noted that although the services data is weak, when combined with historical trends, the September PMI still corresponds to an annualized growth rate of about 0.4 percentage points for U.S. real GDP, indicating an overall economic slowdown but not a recession