A strong rebound in U.S. services activity in September is much welcomed heading into the ports strike, keeping the soft landing on track. The ISM Services Index popped 3.4 points to 54.9, much more than expected and the highest level since February 2023. It was led by a big improvement in business activity and new orders (both above 59), but also some slowing in supplier deliveries (which will only worsen in October depending on the duration of the strike). Pulling in the other direction was a contraction in employment, which might hint at some downside risk in Friday's jobs report. Another negative is that the prices paid index jumped to an eight-month high (59.4), a sign that not all of the inflation embers in the services sector have been extinguished. The comments from purchasing managers were mixed, with nary a word on the ports strike. But look for that issue to get more airplay in October as supplies are delayed and become more expensive.

Bottom Line: Amid robust consumer spending, the large services sector continues to add backbone to the expansion, likely weighing toward a smaller quarter-point rate cut from the Fed in November. But there are still a lot of data to come and the dockworkers' strike is a wildcard.

Table 1 - United States — ISM Services PMI

(percent reporting)

Source: BMO Economics, Haver Analytics

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