Economy

U.S. services growth cools slightly in October, but inflation pressure stays high

Washington • November 4, 2026 • By Press Pass USA

Editorial illustration: service workers seen from behind in a bright shop on an autumn morning

Editorial illustration — Press Pass USA

U.S. services sector growth slowed marginally in October, the Institute for Supply Management reported on Wednesday, November 4, 2026, as new orders cooled and strained supply chains kept prices for inputs elevated.

The ISM's nonmanufacturing Purchasing Managers' Index dipped to 54.5 in October from 54.9 in September. A reading above 50 indicates growth, and the services sector accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index little changed at 54.8. The ISM said it was the 28th consecutive month in expansion territory and 0.2 percentage point above the 12-month average of 54.3.

The survey's measure of new orders received by services businesses decreased to 55.9 in October from 59.8 in September, while the Business Activity Index fell to 53.8 from 56.5. The report suggested the economy started the fourth quarter on solid footing, though economists expect a slowdown in activity, with consumer spending expected to pull back after back-to-back quarters of robust growth.

Household finances are part of that caution. Income at the disposal of households, after adjusting for inflation and taxes, fell in September after being unchanged in August, and the saving rate is at a four-year low of 3.8%. Spending is seen in part curbed by high inflation, which is eroding household purchasing power.

Supply chains remained under strain. The survey's measure of supplier deliveries jumped to 56.7 from 53.2 in September; a reading above 50 indicates slower deliveries, and deliveries have now slowed for 23 consecutive months. Reuters reported that delivery performance deteriorated further against the backdrop of the ongoing U.S.-Israel war with Iran and tariffs on imports, with the Middle East conflict boosting energy prices and causing shortages of commodities shipped through the Strait of Hormuz.

The survey's measure of prices paid by businesses for inputs eased to a still-high 73.0 in October from 74.0 in September. The ISM had reported on Monday a slight moderation in prices paid for inputs by manufacturers in October. Economists expect inflation to continue to run above the Federal Reserve's 2% target into 2027. The Fed last Wednesday left its benchmark overnight interest rate within the 3.75%–4.00% range while acknowledging that inflation "remains elevated," and economists expect the central bank to raise borrowing costs in December.

There was a modest bright spot on hiring. The ISM survey's measure of services employment rose to 51.4 from 50.1 in September, its second month in a row in expansion territory, aligning with economists' expectations for moderate growth in nonfarm payrolls in October. The government's closely watched employment report on Friday is likely to show payrolls advanced by 65,000 in October after increasing 29,000 in September, according to a Reuters survey of economists, with the unemployment rate forecast unchanged at 4.2%.

Fifteen services industries reported growth in October, two more than in September, while two reported contraction: Construction and Health Care & Social Assistance.

Sources: Reuters, "US services sector activity cools slightly in October; inflation remains elevated" (Nov. 4, 2026); Institute for Supply Management, "Services PMI® at 54.5%; October 2026 ISM® Services PMI® Report" (Nov. 4, 2026), via PR Newswire.