The ISM services index topped expectations at 52.4 in October, up from 50.0 in September, and well above the 51.0 figure anticipated in the Econoday consensus.

New orders notably lifted to 56.2 in October from 50.4, and business activity/production rose to 54.3 from 49.9. Employment remained in contraction at 48.2 from 47.2, and order backlog dropped to 40.8 from 47.3. Prices paid worsened to 70.0 from 69.4 as tariffs continued to boost input prices.

ISM described the latest report as a continuation of a downward trend of more than 10 percentage points in the 12-month average since February 2022, when it was 62.6. Despite the uptick for the main ISM index in the latest month, the 12-month average is the lowest since 51.7 in August 2024 and the second lowest since 51.4 in June 2010.

Forecasters see a slight uptick to 51.0 in October from 50.0 in September.

Producing a monthly composite on general activity tracked in volumes, the Institute for Supply Management surveys several hundred service-providing firms from 16 industries (construction and mining are included). The services composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation: a reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM services index, investors will know what the economic backdrop is for the various markets. The services index is a composite of four equally weighted components: business activity, new orders, employment, and supplier deliveries. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. While the ISM manufacturing index has a long history that dates to the 1940s, this report goes back to 1997. Note that in 2020 the ISM changed the name of the report to services from non-manufacturing though it continues to track two key goods producing industries: construction and mining.