(Oct 3): US service providers expanded in September at the fastest pace since February 2023, driven by a flurry of orders and stronger business activity.

The Institute for Supply Management’s (ISM) index of services advanced 3.4 points to 54.9 last month, the group said on Thursday. Readings above 50 indicate expansion, and the latest figure exceeded all projections in a Bloomberg survey of economists.

The group’s new orders gauge jumped 6.4 points, the most since the start of 2023. Combined with a four-month high in a measure of business activity, which parallels the ISM’s factory output gauge, the data suggest the economy was on solid footing at the end of the third quarter.

“The stronger growth indicated by the index data was generally supported by panelists’ comments; however, concerns over political uncertainty are more prevalent than last month,” Steve Miller, chair of the ISM Services Business Survey Committee, said in a statement.

Treasury yields and the S&P 500 moved higher after the figures.

Twelve industries reported growth last month, led by real estate, management of companies and support services, and accommodation and food services. 

The pickup in demand growth also helped to fuel an acceleration in prices paid for materials and services. The index of costs paid rose to 59.4 last month, the highest since January, from 57.3.

At the same time, there were more signs companies are pulling back on hiring. The ISM gauge of services employment fell to 48.1 from 50.2, suggesting companies are comfortable they can meet demand with existing headcounts.

“Pricing of supplies remains an issue with supply chains continuing to stabilise; one respondent voiced concern over potential port labour issues,” Miller said. “The interest-rate cut was welcomed; however, labour costs and availability continue to be a concern across most industries.”

The services survey stands in stark contrast to the group’s manufacturing figures, which earlier this week showed a sixth straight month of contraction. The services index is 7.7 points higher than its manufacturing counterpart, the largest gap since the end of 2019 and illustrating a bifurcated economy.

The services report also showed faster growth in inventories and imports in September, likely reflecting a push by companies to build stockpiles ahead of a strike by East and Gulf Coast dockworkers. Retailers were also stocking up on merchandise ahead of the holiday-shopping season.

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