Photo: via Wikimedia Commons. File photo of the Federal Reserve headquarters in Washington, DC — not a photo of the ISM report itself.
US services activity cooled slightly in October but kept expanding, the Institute for Supply Management (ISM) said on Wednesday, November 4 — a steady, not spectacular, reading that leaves the Federal Reserve with the same uncomfortable mix it has faced all year: growth holding up, and prices still too high.
The ISM Services PMI registered 54.5 percent in October, down 0.4 percentage point from 54.9 percent in September, and just below the 54.8 economists polled by Reuters had expected. A reading above 50 indicates expansion, and October marked the 28th consecutive month of growth in the sector, which accounts for more than two-thirds of US economic activity.
What slowed
The cooling was driven mainly by new orders. The New Orders Index fell to 55.9 percent, down 3.9 percentage points from 59.8 percent in September — still in expansion, but a clear step down from the previous month's pace. Business activity also eased, to 53.8 percent from 56.5 percent in September.
Employment, by contrast, improved. The Employment Index rose to 51.4 percent from 50.1 percent in September, its second consecutive month in expansion territory. Supplier deliveries registered 56.7 percent. Fifteen services industries reported growth in October, led by Transportation and Warehousing, Wholesale Trade, Information, Retail Trade, Finance and Insurance, and Accommodation and Food Services, according to ISM.
A second gauge pointed the same way. S&P Global's final US services PMI fell to 56.1 in October from 58.8 in September — lower than its flash estimate, but still comfortably above 50 and, as S&P noted, consistent with output growth at the start of the fourth quarter.
Prices are still the problem
The most important number in the report for the Federal Reserve may be the prices index. It eased to 73.0 percent in October from 74.0 percent in September, but that is still extremely elevated: the index has now topped 70 percent in seven of the past eight months and exceeded 60 percent for 23 straight months, with its 12-month average rising to 69.2 percent, the highest since April 2023.
No commodities were reported as down in price in October, ISM said. Fuel was reported up in price for a ninth consecutive month, and memory products for a tenth, with memory components also reported in short supply. Steve Miller, chair of the ISM Services Business Survey Committee, said tariffs and fuel-cost impacts continued to be the most-cited issues affecting respondents' supply chains, while many respondents said they were not yet seeing the full impact of those cost increases or had not passed them through to customers.
What it means for the Fed — and for Friday
The report lands between two other labour-market signals this week. On Wednesday, ADP reported private employers added 86,000 jobs in October, beating forecasts, and on Tuesday the Job Openings and Labor Turnover Survey showed openings rising to about 7.52 million in September. The Fed held its benchmark rate at 3.75 to 4.00 percent at its October meeting, and its next decision comes on December 8-9, with markets pricing a high probability of a December rate rise after the recent run of firm data.
Friday's official employment report is still the decisive test. A Reuters survey of economists expects total nonfarm payrolls to have risen by 65,000 in October, after a 29,000 gain in September, with the unemployment rate unchanged at 4.2 percent. Wednesday's services data suggest hiring in the dominant services sector is still growing, but not accelerating — and with input prices stuck far above levels consistent with the Fed's 2 percent inflation target, the central bank has little reason yet to declare the inflation fight won.
Sources: Institute for Supply Management, Services PMI Report, October 2026, via PR Newswire, November 4, 2026; Reuters, "US services sector activity cools slightly in October; inflation remains elevated," November 4, 2026; The Wall Street Journal, "US Services-Sector Activity Expands Again in October," November 4, 2026. Forecasts cited are Reuters and Wall Street Journal surveys of economists, not results.