ISM Services PMI
A Purchasing Managers Index measuring the U.S. services sector, which accounts for the largest share of GDP
What is the ISM Services PMI?
One-line definition: The ISM Services PMI is a key economic indicator that combines the business sentiment reported by purchasing managers at more than 370 U.S. service-sector companies.
In simple terms, purchasing managers who work at service companies — hospitals, banks, hotels, IT firms, logistics companies, and more — are asked questions like "Did your business activity increase this month? What about new orders? What about employment?" and their responses are combined into a single number. Since the service sector makes up about 80% of U.S. GDP, the ISM Services PMI essentially shows the real temperature of the U.S. economy.
The ISM Services PMI is published monthly by the Institute for Supply Management (ISM). Its original name was the "ISM Non-Manufacturing Index (NMI)," but starting in 2024 it was renamed to the "Services PMI." The same ISM surveys it using the same methodology as the manufacturing version, but because it measures services — the core engine of the U.S. economy — it carries its own unique importance.
Many investors only pay attention to the ISM Manufacturing PMI, but in reality the Services PMI has a much stronger correlation with GDP. Services make up 80% of the U.S. economy, while manufacturing only makes up 11%. Even when the Manufacturing PMI is contracting, if the Services PMI is expanding, the economy usually avoids falling into recession.
English term
ISM Services PMI, ISM Non-Manufacturing Index (NMI), ISM Services Index
Korean term
ISM Services PMI, ISM Service-sector Purchasing Managers Index, ISM Non-Manufacturing Index
What does it measure?
The ISM Services PMI is based on a survey of purchasing managers at more than 370 service-sector companies. Like the Manufacturing PMI, it tallies responses of "better," "same," or "worse" using a diffusion-index method.
However, the components of the Services PMI are slightly different from those of the Manufacturing PMI. Manufacturing includes "Production," but services don't have a concept of factory output, so it is replaced by "Business Activity." In addition, manufacturing has five components that include "Inventories," but inventories are excluded from the Services PMI.
The 4 components and weights of the ISM Services PMI:
Business Activity — 33.3%
This corresponds to "Production" in manufacturing. It shows the current level of business activity at service firms and most directly reflects the current feel of the economy.
New Orders — 33.3%
The volume of newly received orders or contracts. This is a leading indicator that hints at future business activity. When new orders rise, it's a signal that employment and activity will expand going forward.
Employment — 16.7%
Hiring or layoffs in the service sector. Since about 85% of U.S. employment is in services, this is a key clue for predicting NFP (Non-Farm Payrolls).
Supplier Deliveries — 16.7%
The speed at which service suppliers deliver. When deliveries slow down (the index rises), it means demand is outstripping supply.
Good to know: The Services PMI covers a very wide range of industries — finance and insurance, healthcare, information technology, hospitality and food services, retail, professional services (consulting, legal), real estate, education, utilities, and more — 15 or more service-industry groups are sampled evenly. If "Production" in the Manufacturing PMI means factory operating rates, then "Business Activity" in the Services PMI has a broader meaning — IT project order volume, hospital patient counts, hotel room occupancy, and more all count as business activity. In addition, although not included in the composite PMI, the separately released Prices Paid index is a key leading indicator of inflation in the service sector.
Key distinction: all you need to know
Since the Services PMI uses the same diffusion-index method as the Manufacturing PMI, the way to read it is the same. But knowing the unique characteristics of the Services PMI allows for more refined interpretation.
1. The 50 threshold — same principle, different context
Above 50 = Services expansion
The service sector is growing. Since 80% of the U.S. economy is expanding, the risk of recession is very low.
Below 50 = Services contraction
If services are also contracting, that's a serious warning sign. Historically, every time the Services PMI was below 50 it almost coincided with a recession.
2. Services vs. Manufacturing — differences in scale and sensitivity
Services PMI
Accounts for 80% of GDP. It is relatively stable against economic swings. The Services PMI dropping below 50 is very rare — it takes a shock on the scale of COVID-19 (April 2020 at 41.8) or the financial crisis.
Manufacturing PMI
Accounts for 11% of GDP. It is very sensitive to the economic cycle. The Manufacturing PMI easily falls below 50 during slowdowns, and sometimes stays in contraction territory for several months or even more than a year.
Key interpretation point: Even if the Manufacturing PMI is below 50, if the Services PMI is above 50, the U.S. economy is generally fine. This actually happens often — throughout 2023 manufacturing was contracting (46–49), but services kept expanding (50–56), and the U.S. economy still posted positive growth. Conversely, when the Services PMI drops below 50, that's a real recession-risk signal.
3. Business Activity = Manufacturing's Production
When you look at a Services PMI release, the "Business Activity" item will catch your eye. This is the component that corresponds to "Production" in the Manufacturing PMI. Business Activity carries the highest weight (33.3%) and directly shows how actively service businesses are currently operating. Strong Business Activity means the service sector is running at full tilt, which is also a sign of solid consumer spending.
What different Services PMI levels mean:
PMI 55 or above
Strong services expansion, solid economic growth
PMI 50–55
Moderate expansion, stable growth zone
PMI 48–50
Caution zone, warning of weakening services momentum
PMI below 48
Services contraction, recession risk rises sharply
Why does it matter? — Its impact on the markets
The reason the ISM Services PMI is becoming increasingly important in the markets is clear: the U.S. is a service economy. Consumers spend far more on services (healthcare, finance, IT, dining, entertainment) than on goods (manufacturing).
Especially in recent years, with a two-track economy pattern of "manufacturing weak but services strong" appearing frequently, the importance of the Services PMI has been highlighted even more.
When the Services PMI is strong (above 50, especially 55+)
It's a signal that the service industry is growing vigorously:
- Positive for the stock market: Healthy consumption and service demand → over 70% of S&P 500 companies are service-related, so overall it's positive
- Consumer-related stocks rally: Finance (JPM), IT (MSFT, GOOG), healthcare (UNH), telecom (T, VZ) and other service-sector stocks rise
- Recession fears ease: Services act as a pillar → expectations of a "soft landing" strengthen
- However, watch out for inflation: If services inflation is sticky, a strong Services PMI can spark concerns about "continued Fed tightening"
When the Services PMI plunges (near or below 50)
This is a much more serious warning than a Manufacturing PMI decline:
- Recession fears: It means 80% of GDP is contracting → fear spreads across the entire market
- Flight to safe assets: Surging demand for Treasuries, gold, and the dollar (paradoxically a safe-haven currency)
- Rate-cut expectations spike: Forecasts that the Fed will urgently cut rates
- Concerns about employment deterioration: 85% of U.S. employment is in services → fears of large-scale unemployment
Real examples of the Services PMI in action:
January 2024 — Services PMI beat expectations (53.4): Coming in well above the market consensus of 52.0 at 53.4, the resilience of the U.S. service economy was confirmed. New Orders came in strong at 55.0, and Business Activity at 55.8 showed that services momentum was accelerating. However, Prices Paid was high at 64.0, which also raised concerns about services inflation.
December 2022 — Services PMI slipped into contraction at 49.6: Affected by the Fed's aggressive rate hikes, the service sector also dipped into contraction territory. This was the first time since COVID-19 in 2020, and it gave the market a major shock. The S&P 500 fell on the day, but at the same time expectations emerged that "the Fed will stop tightening," and Treasuries bounced. It's an example of a single data point producing different interpretations in stocks and bonds.
Market interpretations by Manufacturing vs. Services PMI combinations:
Both above 50 (Goldilocks)
The entire economy is expanding. The most favorable environment for the overall stock market. Both cyclical stocks and growth stocks benefit.
Manufacturing contracting + Services expanding (the most common pattern)
Services is propping up the economy. Not a recession, but industrials are weak. Favor service sectors like tech and healthcare.
Manufacturing expanding + Services contracting (a very rare pattern)
Export boom or inventory rebuild phase. Opportunity in industrials and materials, while consumer-related stocks may weaken.
Both below 50 (recession warning)
The whole economy is contracting. Increase weight in safe assets such as cash, Treasuries, and gold. Favor defensive stocks (utilities, consumer staples).
Release schedule and how to check it
Publishing agency
Institute for Supply Management (ISM)
Release frequency
Once a month (the third business day of each month)
Release time (U.S.)
10:00 AM ET (Eastern Time)
Korea time
Daylight Saving Time (Mar–Nov): 11:00 PM / Winter (Nov–Mar): 12:00 AM midnight
The ISM Services PMI for the previous month's data is released on the third business day of the following month. The Manufacturing PMI is released on the first business day, and the Services PMI comes out two days later. For example, the March Services PMI would be released on April 3 (or the third business day).
This order matters — a common pattern is: on the first business day, the market sees a weak Manufacturing PMI and is disappointed, but two days later a strong Services PMI comes out and the market breathes a sigh of relief thinking, "Well, the economy is okay after all."
Key point: Like the Manufacturing PMI, the ISM Services PMI is released at 10:00 AM ET (30 minutes after the U.S. market opens). The market reacts immediately upon release, and is particularly sensitive to the Prices Paid item. In a situation where services inflation is persistently high, if Prices Paid comes in high, the stock market can fall even when the composite PMI is strong. Always check not only the headline number but also the individual component numbers.
Practical strategies for investors
Here are four strategies for using the ISM Services PMI in real investing. There are unique investment insights available only from the Services PMI.
Strategy 1: Use the Services PMI to judge consumer-facing companies
These are the stock groups directly affected by Business Activity and New Orders in the Services PMI:
- Services PMI strong: Increase weight in finance (JPM, V, MA), IT services (MSFT, CRM, NOW), healthcare services (UNH, HCA), media & entertainment (DIS, NFLX)
- Services PMI weak: Rotate into consumer defensive stocks (consumer staples, utilities). Reduce exposure to cyclical service stocks (hotels, airlines, restaurants)
- Since over 70% of S&P 500 companies are service-related, the Services PMI shows a high correlation with the overall direction of the index
Strategy 2: Read NFP (Non-Farm Payrolls) in advance using the Employment index
The Employment index in the Services PMI is very useful for predicting NFP:
- Because about 85% of all U.S. employment is in services, the ISM Services Employment index foreshadows the direction of NFP with a high probability
- Services Employment above 50: NFP may come in stronger than expected → prepare for an employment beat
- Services Employment below 50: NFP may be weak → rate-cut expectations strengthen → opportunity to buy bonds
- Because the order is Services PMI (third business day) → NFP (first Friday), the PMI gives you a hint 2–3 days before NFP
Strategy 3: Read the direction of services inflation using Prices Paid
Services inflation is the Fed's biggest headache. The ISM Services Prices Paid provides the key clue:
- Prices Paid 60 or above: Service cost acceleration → the services component of CPI is likely to come in high → concerns of continued Fed tightening → be cautious on growth stocks
- Prices Paid trending down: Signal that services inflation is easing → expectations of Fed rate cuts → positive for tech stocks and long-duration bonds
- The Manufacturing Prices Paid is more sensitive to raw material prices, while the Services Prices Paid is more sensitive to wages and labor costs. Since services inflation carries a larger weight in CPI, give more weight to the inflation signal from the Services Prices Paid
Strategy 4: Exploit the gap between Manufacturing and Services PMI
The gap (divergence) between the two PMIs creates investment opportunities:
- Large Services PMI − Manufacturing PMI gap (Services >> Manufacturing): "Two-track economy" → focus on service-related stocks (SaaS, fintech, healthcare). Avoid or reduce industrials and materials
- When the two PMIs are converging (manufacturing is improving): A time to gradually increase exposure to industrials (XLI) and materials (XLB). May be a signal of the early phase of an economic recovery
- Build the habit of analyzing the first business day (Manufacturing) and third business day (Services) releases as a set each month
Relationship with related indicators
Looking at the ISM Services PMI alongside other economic indicators greatly improves the accuracy of your economic calls. Here are the key relationships.
ISM Services PMI vs. ISM Manufacturing PMI
They are twin indicators surveyed by the same ISM using the same methodology, but the economic weight of what they measure is completely different.
- The Services PMI has a much higher correlation with GDP — because services are 80% of GDP
- Manufacturing PMI is released first (first business day), and Services comes out two days later (third business day), so after seeing manufacturing you can try to predict services
- If the two indicators point in the same direction, the signal is clear, and if they point in opposite directions, the Services PMI direction usually reflects the overall economy more accurately
ISM Services PMI vs. Retail Sales
If Retail Sales shows the consumer's "dollar amount spent on goods," the Services PMI shows the "health of services consumption."
- If Retail Sales is weak but the Services PMI is strong → consumers are spending on experiences (travel, dining, entertainment) rather than goods
- If both Retail Sales and the Services PMI are weak → a real warning signal that overall consumption is shrinking
ISM Services PMI vs. Consumer Confidence
Consumer Confidence shows consumer "sentiment," while the Services PMI shows the "actual business conditions" of service firms. If consumer sentiment worsens but the Services PMI remains solid, that means it hasn't yet affected actual spending. But if the sentiment decline persists, it will eventually affect the Services PMI. Checking whether the two indicators move together helps you read the direction of the economy more accurately.
ISM Services PMI vs. Employment indicators (NFP)
Since about 85% of U.S. employment is in services, the ISM Services Employment index is one of the most reliable leading indicators of NFP. The ISM Services PMI is released on the third business day of each month (usually Wednesday–Friday), and NFP is often released on the Friday of the same week. If the Services Employment index drops sharply, there's a high chance employment will also slow in that Friday's NFP.
Related indicators worth looking at together:
ISM Manufacturing PMI
Released two days earlier; essential for completing the full economic picture
Retail Sales
Cross-check with goods consumption for the full consumption picture
Consumer Confidence
Compare consumer sentiment with actual services activity
NFP (Non-Farm Payrolls)
Services jobs make up 85% of NFP; key leading indicator
CPI (Consumer Price Index)
Use Prices Paid to predict the direction of services CPI
GDP
Services PMI has a very high correlation with GDP
Frequently asked questions (FAQ)
Q. When is the ISM Services PMI released?
A. It's released at 10:00 AM Eastern Time on the third business day of every month, two days after the Manufacturing PMI (first business day). In Korea time, that's 11:00 PM during daylight saving time (Mar–Nov) and midnight 12:00 AM during winter (Nov–Mar). The Manufacturing PMI, Services PMI, and NFP (Friday) are often released in the same week, which is why the first week of every month is the busiest "super week" for economic data.
Q. Is the Services PMI more important than the Manufacturing PMI?
A. In terms of correlation with GDP, the Services PMI is more important. Since services make up 80% of U.S. GDP, the Services PMI reflects the direction of the overall economy more accurately. But the Manufacturing PMI cannot be ignored either — manufacturing plays an "early warning" role, picking up turning points in the cycle first. The best approach is to look at both. Use manufacturing to detect changes in the economic direction, and use services to confirm the overall health of the economy.
Q. If the Services PMI drops below 50, does that mean recession?
A. The Services PMI dropping below 50 is very rare, and historically it has almost always moved together with a recession. However, it's hard to conclude from just one month's data. In December 2022 the Services PMI dipped into contraction for one month at 49.6, but rebounded to 55.2 the next month, and there was no recession. The key is whether it stays below 50 for two to three consecutive months. One month can be noise, but three consecutive months should be treated as a real recession signal.
Q. The ISM Services PMI used to be called the "Non-Manufacturing Index (NMI)." Why was it renamed?
A. Starting in January 2024, ISM renamed "Non-Manufacturing" to "Services." The reason is simple: "Non-Manufacturing" is a negative, passive expression meaning "everything that isn't manufacturing," while "Services" more accurately reflects the identity of the industry. There has been no change in the index calculation method or components, so continuity with historical data is fully maintained. In the news you'll see various names used interchangeably — ISM Services PMI, ISM NMI, ISM Non-Manufacturing — but they are all the same indicator.
Q. Why is services inflation so sticky?
A. It's because the largest component of services inflation is labor costs (wages). When raw material prices fall, manufacturing costs drop quickly, but in services it's almost impossible to cut wages that have already been raised. A restaurant worker's hourly wage doesn't go back down after going up. That's why services inflation, once it rises, tends to persist for months or even years. If the ISM Services Prices Paid index doesn't easily come down from above 60, that means the services component of CPI will also stay elevated for a while. The reason the Fed worries most about services inflation is exactly this "stickiness."
Q. On the day the Services PMI is released, should I also factor in the Manufacturing PMI result?
A. Yes, absolutely. Since the Services PMI comes out two days after the Manufacturing PMI, the right approach is to analyze the two indicators as a set. For example, if on the first day the Manufacturing PMI comes in at 48 (contraction) and the market is disappointed, but on the third day the Services PMI comes in at 56 (strong expansion), the interpretation becomes "manufacturing is weak but services is propping up the economy," and a relief rally can follow. Market reactions vary significantly depending on the combination of the two (both strong, both weak, only one strong).