ISM Services Index Dips to 54.5 in October as Hiring Edges Higher
By TopHolding Editorial · Tuesday, November 3, 2026 at 7:00 PM
The ISM Non-Manufacturing Index fell to 54.5 in October, missing expectations. First Trust economists note service activity remains resilient despite persistent cost pressures and slowing momentum.
According to Braden Spiech, Economic Analyst, Brian S. Wesbury, Chief Economist, and Robert Stein, Dep. Chief Economist at First Trust Portfolios, the pace of growth in the service sector took another small step back in October. The ISM Non-Manufacturing Index fell to 54.5 from 54.9 in September, coming in slightly below the consensus expectation of 54.8. Despite the consecutive monthly slowdown, the team notes that service activity has demonstrated resilience against multiple headwinds, remaining above the 53.0 threshold for eleven straight months. Fifteen of eighteen service industries reported expansion during the month.
The underlying measures of activity were mixed across the board. The business activity index slipped to 53.8 from 56.5, marking a notable drop from August's three-year peak of 61.7, though First Trust points out that business activity has now expanded for twenty-eight straight months. The new orders gauge also moderated to 55.9 from 59.8, but remains elevated relative to last year's level. The analysts observe that this steady demand helped push the backlog of orders index to 58.0, matching its highest reading since 2022.
In response to accumulating order backlogs, service firms expanded their workforce, lifting the employment index to 51.4 from 50.1. The economists describe this hiring rebound as a welcome sign after years of staffing challenges, though they caution that two months of improvement does not yet establish a firm trend. Meanwhile, cost pressures remained the most elevated component of the survey. The prices paid index edged down to 73.0 from 74.0, marking the seventh time this year it has breached 70.0. While First Trust views elevated prices as a persistent drag on operating margins, the authors emphasize that current readings remain below the peaks seen during the pandemic.
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Key terms
1. ISM Non-Manufacturing Index: A monthly economic indicator based on surveys of purchasing and supply executives across service-oriented industries, where readings above 50 signal sector growth.
2. Prices Paid Index: A sub-index tracking whether businesses are paying higher, lower, or unchanged prices for materials and services, serving as a leading indicator of business-level inflation.
3. Backlog of Orders Index: A diffusion metric reflecting the volume of customer orders received but not yet completed or delivered by service firms.
Source: Braden Spiech, Economic Analyst, Brian S. Wesbury, Chief Economist, and Robert Stein, CFA, Dep. Chief Economist, First Trust Portfolios — Data Watch. Read the original at ftportfolios.com.
