Services sector stalls at 50.0 as shutdown threatens U.S. economic stability
TOI GLOBAL DESK | TOI Global Desk | Oct 03, 2025, 20:41 IST
A government shutdown sparks a new wave of uncertainty, in photos
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Highlight of the story: The U.S. services sector stalled in September, with the ISM non-manufacturing index hitting 50.0 — the weakest in nearly a year. Declines in new orders and hiring highlight mounting economic fragility as the shutdown stretches into a third day. Treasury Secretary Scott Bessent warned of a GDP hit, while economists said the slowdown complicates the Federal Reserve’s policy outlook. With services making up the bulk of U.S. growth, even a mild contraction could ripple widely across jobs, spending, and markets.
The U.S. services economy came to a halt in September, with the ISM non-manufacturing index falling to 50.0, indicating no growth. Slowing new orders, softer hiring, and the ongoing government shutdown reflect a precarious economy and make the Fed's way forward more difficult.
America's services industry, the economic backbone of the United States, stagnated in September, raising new doubts about the country's economic durability. The non-manufacturing purchasing managers' index (PMI) stood at 50.0, the exact dividing line between expansion and contraction, the Institute for Supply Management reported. The reading marks the weakest performance in nearly a year and underscores the fragile state of the economy just as a federal shutdown enters its third day. With services representing more than two-thirds of U.S. GDP, even a modest stall in activity can ripple quickly through employment, consumer spending, and financial markets.
Economists caution that the September reading can be seen as an indication that the economy's principal growth engine is losing steam at a vulnerable time.
The ISM report showed that new orders, a primary driver of future growth, edged into contraction ground after several months of modest growth. Firms across many industries reported softened demand, attributing it to both consumer restraint and the increased uncertainty of Washington's budget impasse. Job growth in the services sector also slowed down. Though hiring has remained resilient in recent months, September's fall created alarm signs that companies might be postponing plans. "Slowing service hiring is generally a warning of more widespread labor market weakness," warned analysts as they observed that job creation momentum seemed to be weakening.
The shutdown adds to the slowdown
The slide comes as the government shutdown persists, forcing agencies to close and pushing back the announcement of important economic statistics, such as the monthly employment report. Treasury Secretary Scott Bessent issued a warning that the impasse could add a serious hit to GDP if it drags on."The shutdown doesn't just stop government operations," Bessent said Friday. "It also undermines confidence at a time when families and businesses are already anxious."Markets are closely observing for hints on how long the shutdown might last and whether it will further deepen the slowdown already apparent in the services economy.
Inflation pressures ease, but growth stumbles
Some companies reported relief in alleviating supply chain clogs and settling input prices, suggesting inflation pressures are slowly easing off. But all that was offset by a slowing in demand. Economists report the dynamic implies inflation may continue to ease — but at the cost of economic expansion.The ISM's reading is the latest of several private-sector measures to signal a services slowdown in the summer. Collectively, they indicate what some economists describe as a "stagflation-lite" scenario: slowing growth while consumers continue to endure higher prices.
The Fed is confronted with a policy conundrum
The timing of the stall presents an added difficulty for the Federal Reserve, which had been slated to again reduce interest rates prior to the year's end to stabilize growth. With the government shutdown impairing the flow of official economic data, the Fed might be forced to make vital policy decisions without a clear vision of inflation, jobs, and consumer spending.“This is exactly the kind of environment where policymakers need reliable information,” said one Wall Street economist. “Instead, they’re flying blind, and the risks of making the wrong move grow higher by the day.”
If the shutdown persists, ISM surveys might still be among the only true measures of economic well-being. Investors are currently monitoring to determine whether September's slump carries over into October and jeopardizes the important holiday shopping season.
A sustained fall below the 50 level would trigger recession warnings in advance of 2026 and increase pressure on Congress and the Fed to take decisive action.
Services sector at a standstill
America's services industry, the economic backbone of the United States, stagnated in September, raising new doubts about the country's economic durability. The non-manufacturing purchasing managers' index (PMI) stood at 50.0, the exact dividing line between expansion and contraction, the Institute for Supply Management reported. The reading marks the weakest performance in nearly a year and underscores the fragile state of the economy just as a federal shutdown enters its third day. With services representing more than two-thirds of U.S. GDP, even a modest stall in activity can ripple quickly through employment, consumer spending, and financial markets.
Economists caution that the September reading can be seen as an indication that the economy's principal growth engine is losing steam at a vulnerable time.
New orders decline, hiring eases
The ISM report showed that new orders, a primary driver of future growth, edged into contraction ground after several months of modest growth. Firms across many industries reported softened demand, attributing it to both consumer restraint and the increased uncertainty of Washington's budget impasse. Job growth in the services sector also slowed down. Though hiring has remained resilient in recent months, September's fall created alarm signs that companies might be postponing plans. "Slowing service hiring is generally a warning of more widespread labor market weakness," warned analysts as they observed that job creation momentum seemed to be weakening.
The shutdown adds to the slowdown
Inflation pressures ease, but growth stumbles
Some companies reported relief in alleviating supply chain clogs and settling input prices, suggesting inflation pressures are slowly easing off. But all that was offset by a slowing in demand. Economists report the dynamic implies inflation may continue to ease — but at the cost of economic expansion.The ISM's reading is the latest of several private-sector measures to signal a services slowdown in the summer. Collectively, they indicate what some economists describe as a "stagflation-lite" scenario: slowing growth while consumers continue to endure higher prices.
The Fed is confronted with a policy conundrum
The timing of the stall presents an added difficulty for the Federal Reserve, which had been slated to again reduce interest rates prior to the year's end to stabilize growth. With the government shutdown impairing the flow of official economic data, the Fed might be forced to make vital policy decisions without a clear vision of inflation, jobs, and consumer spending.“This is exactly the kind of environment where policymakers need reliable information,” said one Wall Street economist. “Instead, they’re flying blind, and the risks of making the wrong move grow higher by the day.”
What comes next
A sustained fall below the 50 level would trigger recession warnings in advance of 2026 and increase pressure on Congress and the Fed to take decisive action.
Frequently Asked Questions (FAQs)
- What is the ISM non-manufacturing index?It measures the performance of the U.S. services sector, with 50 marking the line between growth and contraction.
- Why is the services sector important to the U.S. economy?Services account for more than two-thirds of U.S. GDP, making it the largest driver of growth
- What does a reading of 50 mean?A 50.0 reading signals no growth — the sector neither expanded nor contracted in September.
- How does the shutdown affect the services sector?It fuels uncertainty, reduces consumer confidence, and delays federal data that businesses rely on.
- Could this stall lead to a recession?If services activity dips below 50 for consecutive months, it raises the risk of a broader economic downturn.