In September 2025, the U.S. services sector stagnated. The Institute for Supply Management’s non-manufacturing PMI slipped to 50.0 from 52.0 in August, putting it right at the breakeven mark. New orders plunged to 50.4, down from 56.0, signaling weak demand. The employment subindex rose only slightly to 47.2, still in contraction territory.
Economists point to several headwinds behind the stall. Uncertainty over tariffs and global trade has weighed heavily. Labor supply has tightened, partly due to stricter immigration enforcement. Meanwhile, rising costs in sectors such as travel and hospitality are adding inflation pressure.
The broader labor market shows signs of fatigue. The ratio of job openings to unemployed workers has narrowed. Some forecasters now expect the Federal Reserve to deliver additional rate cuts later this year if labor conditions weaken further.
However, inflation remains sticky in services, complicating the Fed’s task. Even as growth slows, increases in airfares, hotel rates, and other services are pushing price indexes upward. Such upward pressure may limit how aggressively the central bank can ease.
Businesses and investors are watching closely. If services— which account for roughly 90 % of U.S. economic activity— falter, then the entire economy could lose momentum. Many firms are delaying expansion and hiring plans amid reluctance to commit in uncertain conditions.
In summary, the latest data show the services sector has lost steam. New orders have collapsed, employment is weak, and inflation is proving resilient. If these trends continue, growth risks may rise and the Fed may have to tread carefully between supporting demand and containing inflation.
