November 4, 2026

The Institute for Supply Management not only publishes an index of manufacturing activity each month, they publish two days later a survey of service sector firms.  The business activity index for the service sector fell 2.7 points in October to 53.8 after having declined 5.2 points in September.  We tend to focus on the business activity component as a measure of “production” because it seems to track better with the pace of economic activity.  Trump’s imposition of tariffs, federal government layoffs, and deportation of immigrants made people in the service sector nervous throughout 2025.  This index moved upwards earlier in the year, but with nervousness about the election and what Trump might do post election this series has once again turned lower although at 53.8 the services sector continues to expand, but at slower pace than it did during the summer.

The composite index fell 0.4 point in October to 54.5 after having declined 0.5 points in October..  Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management’s  Business Survey Committee said, “Fifteen industries indicated growth in October, two more than the previous month, while two reported contraction, two fewer than in September. The October Services PMI^® reading of 54.5 percent is 0.2 percentage point above the 12-month average of 54.3 percent. The uptick of 0.2 percentage point over September’s 12-month average of 54.1 percent marks the tenth straight month that figure has increased.”

He added that, “Tariffs and fuel cost impacts continued to be the most-cited issues impacting respondents’ supply chains, while many respondents indicated they are not yet seeing the full impact of these cost escalations or have not passed them through to customers. This indicates that more pricing pressure is on the way if oil and tariff cost impacts are not mitigated, even if they do not increase from current levels. Commentary on supply chain constraints increased significantly month over month, while the Backlog of Orders Index increased to 58 percent, its highest reading since it registered 58.3 percent in July 2022. The commodities identified as in short supply, however, decreased month over month, from seven to three. The Employment Index’s second consecutive reading above 50 percent may indicate help is on the way for slowing supplier deliveries and increasing order backlogs. While the Backlog of Orders index hit its highest level since July 2022, the Supplier Deliveries Index reading in October is the second highest in that timeframe, exceeded only by April 2026 (56.8 percent).”

At its current level the ISM group says that is consistent with 2.0% growth in GDP.

Comments from respondents include:

• “Fuel and freight markets continue to exert pressure on distribution cost planning. The continued war in Ukraine and drought in the Midwest along with fuel and fertilizer costs are driving up the cost of wheat (30 percent year-over-year).” [Accommodation & Food Services]
• “Overall demand is sluggish.” [Agriculture, Forestry, Fishing & Hunting]
• “Activity remains steady, with a strong backlog of institutional and commercial projects. Material availability has generally improved, though some mechanical and electrical equipment still requires early procurement. Labor shortages and wage pressure continue to impact the market, while higher financing costs are causing owners to closely evaluate project budgets and schedules. Overall outlook remains cautiously positive.” [Construction]
• “Purchasing operations continue to be impacted by elevated costs for goods and services, particularly in construction, facilities maintenance, technology and contracted services. Ongoing uncertainty surrounding tariffs, labor availability and broader economic conditions continues to influence supplier pricing and procurement planning. While overall supply chain conditions have stabilized compared to previous years, suppliers remain cautious with pricing commitments, and cost pressures continue to affect budgets.” [Educational Services]
• “Our company’s AI utilization is increasing, but we have guardrails in place to cap token utilization and evaluate TCO. The price of diesel has impacted our commercial trucking business, and Hurricane Isaias temporarily caused a moratorium on binding certain policies in parts of Alabama, Mississippi and Florida.” [Finance & Insurance]
• “Fuel prices are impacting many of our consumables and delivered goods. This has reduced margins, as we have not passed the expense to our customers because we believe it will be a short-term condition.” [Information]
• “While business activity remains strong, the impacts of tariffs, increased fuel prices, and longer lead times are becoming more challenging.” [Management of Companies & Support Services]
• “Tariffs are causing havoc with international merchandise sourcing.” [Retail Trade]
• “Generation demand is strong. Supplies for services, equipment and materials are constrained. Nuclear uprates (or power level increases) and next-generation plants have strong tailwinds but regulatory headwinds.” [Utilities]
• “Tariff policy remains the main driver of landed cost: Section 301 duties in force since late July replaced the expired flat tariff, raising duties on Southeast Asian canned and dry goods. Ocean freight from Asia remains elevated and volatile, and U.S. East Coast port congestion is expected in November. El Niño is constraining fish supply, and we have suspended one source. Some Asian suppliers have delayed shipments by weeks or months and are raising prices on beverage items and reducing prices on others. Inventory is high in aggregate but unevenly distributed, so service gaps persist on selected items.” [Wholesale Trade]

The non-manufacturing orders component fell 3.9 points in October to 55.9 after declining 1.1 points in September. The index has expanded for 17 consecutive months. Comments from respondents include: “New orders are growing at a moderate, slower pace; production remains stable with no major surge” and “Excess speculative home inventory must sell before we can start new ones.”

The ISM on-manufacturing index for employment rose 1.3 points in October to 51.4 after having climbed 2.3 points in September. Six industries reported an increase in employment in October. Comments from respondents include: “Increasing employment to support business growth and new contract awards” and “Less people, more work equals frustration.”

The suppler deliveries component 3.5 points in October to 56.7 after having risen 1.9 points in September.  This component is reversed in the sense that a reading above 50 percent indicates slower deliveries to service sector firms which is typically indicative of a strengthening economy.    A reading below 50 percent indicates faster deliveries. Thus, firms reported slower delivery times in Octoberber for the 23rd month in a row. Comments from respondents include: “Stabilizing of supply of subcomponents on technology products” and “Repeated vessel and supplier schedule slips (some weeks to months late), and several overdue open orders; longer lead times are forcing earlier ordering and more rescheduling.”

Finally, the price component fell 1.0 point in October to 73.0 after having risen 1.4 points in September.  Seventeen service sector industries reported an increase in prices paid during the month.  Price pressures are continuing to climb in the service sector in part because of tariffs but, in recent months, the gain was largely related to oil prices.  Miller noted,  ““Tariffs and fuel cost impacts continued to be the most-cited issues impacting respondents’ supply chains, while many respondents indicated they are not yet seeing the full impact of these cost escalations or have not passed them through to customers. This indicates that more pricing pressure is on the way if oil and tariff cost impacts are not mitigated, even if they do not increase from current levels.”

The manufacturing sector of the economy contracted for a couple of years but has rebounded since the beginning of the year . The service sector has also gathered momentum since January. We saw 3.4% GDP growth in the third quarter of 2026 and 2.7% growth for the year as a whole.  We expect to see 2.6% GDP growth in 2027 as well.

.Stephen Slifer

NumberNomics

Charleston, SC