Published October 6, 2025
ISM Services Index: Tracking the Service Economy
While the ISM Manufacturing PMI gets more attention, the ISM Services PMI covers the much larger and more important service sector — approximately 80% of U.S. GDP and 86% of employment. For most American businesses, the services PMI is a more relevant economic barometer than its manufacturing counterpart. Understanding how to read this indicator provides real-time intelligence about the sector that drives consumer spending, employment, and economic growth.
Services vs. Manufacturing: Why It Matters
The U.S. economy long ago shifted from manufacturing to services. Healthcare, financial services, professional services, education, technology services, and hospitality collectively dwarf manufacturing in economic contribution. Yet media coverage disproportionately focuses on the manufacturing PMI, partly because of historical precedent and partly because manufacturing data has a longer track record as a cycle indicator.
The ISM Services PMI, published on the third business day of each month, surveys over 400 purchasing and supply management professionals across 18 service industries. Like its manufacturing counterpart, readings above 50 indicate expansion and below 50 indicate contraction. Track both PMIs on FRED and the ExecBolt indicators dashboard.
Key Components
The Services PMI has four equally-weighted components: Business Activity (equivalent to manufacturing production), New Orders (forward-looking demand signal), Employment (hiring and staffing), and Supplier Deliveries (supply chain speed). New Orders is the most valuable leading indicator — when service sector new orders decline below 50, it signals a broad-based demand weakening across the economy.
The Prices Paid sub-index, while not part of the headline composite, is closely watched as a services inflation signal. Because services inflation is heavily driven by labor costs, the Services Prices Paid index often leads core services CPI by 1-3 months. The Fed monitors this closely for signals about the stickiest component of inflation.
When Manufacturing and Services Diverge
Manufacturing and services PMIs can send different economic signals. Manufacturing may contract (below 50) while services expand strongly, as occurred during several periods in 2022-2023. When this happens, the services reading is more representative of overall economic health because it covers a much larger share of the economy.
However, when both PMIs decline below 50 simultaneously, the recession signal is very strong. Broad-based weakness across both goods and services indicates that demand is declining across the entire economy, not just in one sector. Track both alongside recession indicators and consumer confidence for the most reliable economic assessment.
Frequently Asked Questions
The survey covers 18 service industries including healthcare, finance and insurance, professional services, retail trade, real estate, educational services, accommodation and food services, transportation, information, utilities, and public administration. This breadth makes it a comprehensive gauge of service sector health.
The Services PMI has a shorter track record than the Manufacturing PMI (established in 1997 vs. 1948) but has become increasingly important as the service sector grew. Services PMI readings above 49 have historically been consistent with positive GDP growth. The indicator is most reliable when both services and manufacturing PMIs move in the same direction.
There is no precise threshold, but readings below 49 sustained for two or more months have historically aligned with economic weakness. When combined with manufacturing PMI below 48 and other recession indicators, a sub-49 services reading significantly increases recession probability.