U.S. service-sector activity grew in September at its fastest pace in more than five years, according to a survey released Monday by S&P Global, even as the same report showed costs climbing at their sharpest rate since late 2022.
The Services PMI Business Activity Index rose to 58.8 from 56.5 in August, the fourth straight monthly increase and the strongest reading since July 2021. Any number above 50 signals expansion from the prior month.
For the first time in ten months, all five broad services sectors tracked by the survey posted growth. Information and communication firms led by a wide margin, while transportation and storage returned to expansion.
“Tech companies are reporting by far the strongest growth but the rising tide is now lifting all boats as far as the major sectors are concerned,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Williamson said growth was also picking up among consumer-facing businesses, industrials, and healthcare firms, while financial services kept posting solid gains.
New orders rose at the fastest clip in four-and-a-half years, driven largely by domestic demand. Export orders grew for a second straight month, though more slowly than overall new business, matching August’s 20-month high.
Companies responded by hiring for a third consecutive month at the fastest pace since June 2022, with some firms reporting they finally filled long-vacant positions. Even so, backlogs of unfinished work grew for a nineteenth straight month, rising at the fastest rate in nearly four-and-a-half years.
Manufacturing Joins the Surge
The strength wasn’t confined to services. S&P Global’s Composite PMI, which blends manufacturing and services, climbed to 58.4 from 56.0 in August, with both sectors accelerating to produce the strongest combined expansion in over five years.
“Combined with the encouragingly solid manufacturing PMI, the strong service sector expansion points to economic growth of around 4% in the third quarter and 5% in September alone, the latter hinting at accelerating momentum into the fourth quarter,” Williamson said.
Those growth figures reflect S&P Global’s own interpretation of the survey data rather than an official government measure of gross domestic product.
Business optimism about the year ahead reached a one-year high, with firms pointing to new products, new clients, referrals, and expectations of further order growth. Some also said they hoped cost pressures would ease.
Prices Jump After a Brief Lull
That hope was not borne out in September’s data. Input costs for services firms, which had slowed to a 16-month low in August, accelerated sharply to their fastest pace since November 2022. Respondents widely cited higher gasoline prices and the transportation costs that followed, along with rising labor costs.
Businesses passed much of that along to customers: services selling-price growth was the second-strongest in just over a year, trailing only July. Across manufacturing and services combined, input costs rose at the fastest pace since October 2022, with selling prices climbing faster as well.
Williamson said the price readings would reinforce concerns that the economy is overheating, describing them as a signal of continued inflation pressure above the Federal Reserve’s 2 percent target.
The services survey draws on responses from roughly 400 companies, collected between September 10 and September 28.
A Second Reading Shows Similar, if Slightly Cooler, Growth
A separate survey released the same day by the Institute for Supply Management likewise showed solid, if slightly slower, services growth. ISM’s Services PMI eased to 54.9 from 55.4, still well above the 50-point threshold and marking a 27th straight month of expansion. The business activity index fell to 56.5 from 61.7, while new orders remained strong at 59.8, down from 60.9. The number of industries reporting growth rose to 13, one more than in August, and the employment index moved back into expansion at 50.1 from 47.8.
