US Services Index Eases to 54.5 in October as Order Backlogs Reach Highest Since 2022
US services activity grew for a 28th month in October as the Institute for Supply Management’s Services PMI eased to 54.5, with order backlogs at their highest since July 2022.
For American services firms, October brought a split picture. Customer demand cooled, while hiring, export orders and order backlogs strengthened and prices paid kept rising for a 113th month. In The Edge’s reading, the steady headline owes much to slower supplier deliveries, which the index counts as a plus: without them, the other three PMI components average 53.7, against 55.5 in September.
The Services PMI averages four equally weighted readings: business activity, new orders, employment and supplier deliveries. A reading above 50 signals expansion. All 10 indexes the report tracks were in expansion territory in October, the first time since February 2026.
The headline slips 0.4 point but stays in a narrow band
The Services PMI registered 54.5, down from September’s 54.9, which was set out on 5 October. It is the 28th consecutive month above 50.
The reading sits 0.2 points above its 12-month average of 54.3. That average has now risen for 10 straight months.
Every reading since May has fallen between 54.0 and 55.4. Over the past 12 months the index has ranged from 52.4 in November 2025 to 56.1 in February 2026. October is 2.5 points above the 52.0 recorded a year earlier.
The institute also maps the headline onto the wider economy. On the index’s historical relationship with the economy, 54.5 corresponds to annualised real GDP growth of 2%. A month earlier the same mapping gave 2.1%. By the survey’s measure, the overall economy has expanded for 77 months in a row.
Factories have moved ahead of services. The manufacturing index of 55.5, set out on 2 November, is 1.0 point above the services reading. In September, services led by 0.4 point.
Demand cools, hiring improves and deliveries slow
Business activity eased to 53.8 from 56.5. The index stood at 61.7 in August, so it has shed 7.9 points in two months.
Thirteen industries reported higher activity and two reported lower: construction, and real estate, rental and leasing. In the raw response shares, the fall came from fewer firms seeing gains rather than more seeing declines. Firms reporting higher activity fell to 20.8% from 30.9%.
Those reporting lower activity eased to 11.4% from 12.4%. The share seeing no change rose to 67.8% from 56.7%. Business activity is 2.9 points below its 12-month average of 56.7.
New orders grew for a 17th month. The index eased to 55.9 from 59.8. Firms reporting more orders were 26.1%, down from 31.4%.
Fifteen industries reported more orders. Construction was the only one reporting fewer, for a third month in a row.
Employment grew for a second month. The index rose to 51.4 from 50.1. That is 2.1 points above its 12-month average of 49.3.
Only six industries reported higher employment while seven reported lower: management of companies and support services, health care and social assistance, other services, mining, construction, educational services and public administration. The raw response shares show fewer firms cutting staff: those reporting lower employment fell to 13.5% from 16.2%.
The share reporting higher employment was little changed at 16.6%. Respondents’ comments were mixed. One cited increasing employment to support business growth and new contract awards, while another said less people and more work equals frustration.
Supplier deliveries registered 56.7, up 3.5 points from 53.2. The gauge is inverted: above 50 means slower deliveries, which the institute describes as typical as the economy improves and customer demand increases.
It was the 23rd month in a row of slower performance. The reading is 2.5 points above its 12-month average of 54.2.
It is the second highest since July 2022, behind only April 2026’s 56.8. Fourteen industries reported slower deliveries and none reported faster. Respondents seeing slower deliveries rose to 15.7% from 8.8%.
Supplier deliveries lifted the month’s change by 0.875 point, since each of the four components carries a quarter of the weight. The other three components together lowered it by 1.325 points. The net, a fall of 0.45 point, is within rounding of the printed fall of 0.4 point.
The chair, Steve Miller, who leads the institute’s Services Business Survey Committee, said the second straight reading above 50 in employment may indicate help is on the way for slowing deliveries and growing backlogs. One respondent described repeated vessel and supplier schedule slips of some weeks to months, with longer lead times forcing earlier ordering and more rescheduling.
Backlogs reach their highest since July 2022 and prices paid keep rising
The backlog of orders index rose to 58.0 from 56.6. That is the highest reading since July 2022.
It has grown for nine months in a row, the longest run since a 26-month stretch that ended in February 2023. Eleven industries reported larger backlogs and three reported smaller: transportation and warehousing, construction and other services.
Of the respondents, 33% said they do not measure backlogs. The share reporting larger backlogs rose to 24.9% from 21.5%.
New export orders returned to growth after one month of contraction, rising to 55.2 from 46.9. Six industries reported more export orders and five reported fewer. Seven reported no change.
A large share sits out this measure: 40% of respondents said they do not perform, or do not separately measure, orders for work outside the US. Firms reporting more export orders rose to 20.5% from 8.2%.
Imports grew for a fourth month as the index rose to 54.2 from 52.9. That is the seventh month of growth in eight. Eight industries reported more imports and two reported fewer.
One respondent said the firm is trying to source more products from suppliers in the US-Mexico-Canada Agreement area to mitigate steep tariffs on food, apparel and electronics from Asia.
The prices index eased to 73.0 from 74.0. Services firms have now paid higher prices for 113 months in a row.
The index has exceeded 60 for 23 straight months. Its 12-month average rose to 69.2, the highest since April 2023. October’s reading is 3.8 points above it.
Seventeen industries reported paying more and none reported paying less. Agriculture, forestry, fishing and hunting was the only one of the 18 industries surveyed not on the list of those paying more.
Firms paying more were 48.6% of respondents, down from 50.3%. Those paying less were 4.0%, up from 2.2%.
The commodity lists point the same way. Fuel was reported up in price for a ninth month in a row, and memory products for a 10th.
No commodity was reported down in price, against lumber and pork products in September. The number in short supply fell to three from seven: computers and related products, memory components, and wire and cable.
The chair said tariffs and fuel costs were again the most-cited pressures on supply chains. Many respondents, Miller said, are not yet seeing the full impact or have not passed it on to customers. He added that this points to more pricing pressure if oil and tariff cost impacts are not mitigated, even if they do not rise from current levels.
Respondents described how that reaches their costs. A wholesale trade respondent said Section 301 duties in force since late July replaced the expired flat tariff and raised duties on Southeast Asian canned and dry goods, and that East Coast port congestion is expected in November.
An information respondent said fuel prices have cut margins because the firm has not passed the expense on to customers, expecting the condition to be short term.
For comparison, the manufacturing prices index stands at 75.2, which is 2.2 points above the services reading.
Inventories ease and 15 of 18 industries grow, but construction and health care contract
Inventories grew for a ninth month, though the index eased to 55.4 from 57.8. Ten industries reported higher inventories and four reported lower.
Of respondents, 30% said they do not have inventories or do not measure them.
The inventory sentiment index rose to 52.1 from 51.7. It is the 42nd straight month in the “too high” zone, where respondents feel their companies’ inventories are too large for business requirements. Seven industries said their inventories were too high.
Fifteen industries reported growth in October, two more than in September. Two reported contraction, down from four. Transportation and warehousing led the list, followed by wholesale trade, information, retail trade, and arts, entertainment and recreation.
Construction was on the contraction list in both September and October. Health care and social assistance joined it after ranking 12th among the 13 growing industries in September. Mining, on September’s contraction list, appeared on neither October list.
Of the six largest services sectors the report names, five grew: real estate, rental and leasing; public administration; professional, scientific and technical services; information; and finance and insurance. Health care and social assistance was the exception.
A construction respondent reported a strong backlog of institutional and commercial projects and a cautiously positive outlook, while noting that higher financing costs are making owners scrutinise project budgets and schedules. A utilities respondent said generation demand is strong but supplies of services, equipment and materials are constrained. A retail trade respondent said tariffs are causing havoc with international merchandise sourcing.
What to watch: The November manufacturing report is due on Tuesday 1 December at 15:00 GMT, and the November services report on Thursday 3 December at 15:00 GMT.
Figures are from the Institute for Supply Management’s October 2026 Services PMI Report, released on 4 November 2026, with September values and the October 2025 comparison from its September 2026 Services PMI Report and the manufacturing readings from its October 2026 Manufacturing PMI Report, released on 2 November 2026; changes, differences, shares, averages and component contributions not attributed to a source are The Edge’s calculations.
Sources: Institute for Supply Management, The Edge.
