- Lead. The US ISM Services PMI came in at 55.1 for September on October 5, beating the consensus forecast of 55.0 and confirming the services sector remains in solid expansion.
- Fact. The reading follows a September payrolls print of just 29,000 jobs — well below the 84,000 consensus forecast — which pushed CME FedWatch’s probability of a Fed hold at the October meeting to 83.9%.
- Stake. The combination of resilient services and a weakened labour market hands the Federal Reserve a complex picture: inflation still runs above target at 3.0% core PCE, even as hiring has softened sharply.
The Institute for Supply Management’s non-manufacturing index arrived at 55.1 for September on October 5, according to the ISM’s September report, landing just above the consensus estimate of 55.0. Readings above 50 signal expansion in the services sector, which accounts for roughly 80% of US economic activity.
Services Hold Up as Jobs Disappoint
The print lands three days after the September non-farm payrolls report showed employers added only 29,000 positions — well below the 84,000 consensus forecast — while the unemployment rate rose to 4.2%. The two data points now point in different directions: the services sector is still growing at a pace consistent with the second half of 2026, while the labour market is clearly losing momentum. The weak payrolls release drove CME FedWatch’s probability of an unchanged rate decision at the October meeting to 83.9% as of October 2.
The Federal Reserve last raised rates in the summer cycle; policymakers have described inflation as the primary risk to the outlook, but a deteriorating labour market limits the case for further tightening. Services sector resilience complicates that calculus: services prices, particularly in housing and healthcare, have been the stickiest component of the inflation overshoot throughout this cycle.
The Fed’s Dilemma
Core PCE, the Fed’s preferred inflation gauge, came in at 3.0% for August — below expectations but still 100 basis points above the 2% target. A services sector printing above 55 for a second consecutive month suggests that pricing power in the sector has not yet eroded. FOMC minutes from the most recent meeting are due Wednesday, October 7, and are expected to shed light on how divided the committee has become over the path forward.
The August services PMI at 55.4 had signalled continued expansion; September’s 55.1 suggests the pace is stable rather than accelerating. For a committee inclined to hold, the data provides cover. For hawks seeking another hike, the persistent services strength — and the 3.0% core PCE — keeps the argument alive.