The US services sector renewed its expansion in October as output and new orders grew while the labor market showed signs of easing contraction, signaling the overall economy is largely weathering the government shutdown and the administration's tariff wars.
The services purchasing managers' index (PMI) rose to 52.4 in October from 50 in September, the Institute for Supply Management (ISM) reported Wednesday. It marked an eighth month of expansion this year for the largest segment of the economy and the strongest growth since February. The threshold between growth and contraction is 50.
"The stronger reading in October provides some support for the notion that the government shutdown is having a limited impact on the broader economy," Pantheon Macroeconomics said in a note. "We retain our view that a weak labor market and resulting downward pressure on core services inflation mean further Fed easing is likely in the coming quarters."
The business activity/production index rose to 54.3 in October from 49.9 in September. The new orders index rose to 56.2 last month from 50.4. New export orders rose to 47.8, while imports slid to 43.7, both in contraction.
The employment index was at 48.2, showing an easing rate of contraction from 47.2 the prior month.
The survey from the private ISM is one of the few economic surveys or reports that provide a window into the state of the US economy since most government data went dark with the beginning of the partial government shutdown beginning 1 October.
ISM's factory survey, reported on 3 November, showed manufacturing at 48.7, an eighth month of contraction.
Wednesday's services prices index rose to 70 in October, the first time at or above that threshold since October 2022.
"Tariffs likely are raising costs for some services companies, but imported goods are a relatively small share of total costs for most," Pantheon Macroeconomics said.
Survey respondents continued "to mention the impact of tariffs on prices paid," ISM said. "There was no indication of widespread layoffs or reductions in force, but the federal government shutdown was mentioned several times as impacting business activity and generating concerns for future layoffs."
A separate report Wednesday from ADP payroll services showed the US added 42,000 private sector jobs in October, the first gains since July, as initially reported.
