ISM services PMI slips to 54.9, below the 55.2 estimate

• The prior-month nonmanufacturing services PMI came in at 55.4.

Here are the ISM details:

• Services PMI: 54.9, versus 55.4 previously.

How the September component readings compare with August:

• Business activity: 56.5, down from 61.7
• New orders: 59.8, compared with 60.9
• Employment: 50.1, up from 47.8
• Prices: 74.0, versus 72.6
• Supplier deliveries: 53.2 after 51.3
• Backlog of orders: 56.6 versus 55.6
• Inventories: 57.8 versus 56.7
• New export orders: 46.9 versus 56.3
• Imports: 52.9 versus 56.3
• Inventory sentiment: 51.7 versus 54.1

September brought continued expansion for the US services sector, though at a more moderate clip. The ISM's Services PMI sat at 54.9 in September, down from 55.4 the previous month, stretching the growth streak to 27 consecutive months. The underlying data told a mixed story, with business activity losing momentum, employment returning to slight growth and price pressures building.

Business activity lost 5.2 points to 56.5, while new orders eased to 59.8, a level that still implies solid demand. Employment rose to 50.1, above the 50 dividing line and out of a two-month contraction. Backlogs climbed to 56.6, the strongest reading since July 2022, indicating that businesses have plenty of work still to complete. The expansion also widened, with 13 industries in growth mode against 12 in August.

Inflation remains a concern. The prices index moved up to 74.0, its highest level since July 2022. Fuel costs were the most frequently mentioned issue by respondents, while tariffs and supply constraints also pushed up costs and delivery times. Supplier deliveries slowed more, and new export orders fell sharply to 46.9, putting that gauge in contraction.

Quick take: Growth has cooled, but the services sector is still expanding, and the inflation trend is pointing the wrong way. Together, those forces could make the Federal Reserve wary of easing. Higher prices and a firmer employment reading could support US yields and the dollar, although slower activity and weaker export orders are an offset. For stocks, steady demand is a positive, but rising costs and higher yields could reduce the upside. The open question is whether businesses can reduce backlogs without stoking more price pressure.

About the data: The ISM Services PMI is a monthly survey that tracks changes in business conditions across service industries. A figure above 50 generally means expansion, while below 50 means contraction; these are index levels rather than percentage growth rates. The supplier deliveries index has a different interpretation: above 50 means slower deliveries, which can be a sign of strong demand or supply disruptions.

The broader US stock indexes are still trading higher:

• S&P index +0.25%
• NASDAQ index +0.55%
• NASDAQ 100 index +0.33%

Treasury yields were mixed across maturities, with the short end lower and the long end higher:

• 2-year: 4.8038%, down 2.12 basis points
• 5-year: 5.0482%, down 0.68 basis point
• 10-year: 5.2919%, up 1.49 basis points
• 30-year: 5.6575%, up 2.75 basis points

The 2-to-10-year spread widened by 3.61 basis points to 48.81 basis points, a sign the yield curve is steepening.