• September's final S&P Global (SPGI) US Services PMI rose to 58.8, beating the flash estimate and marking the strongest expansion since July 2021. The composite index held at 58.4, signaling a booming private sector.
  • Backlogs surged at the fastest pace since May 2022, prompting hiring at the quickest rate in over four years. Input costs accelerated to their highest since October 2022, driven by fuel, transport, and wages.
  • The data complicates the Fed's path: strong growth and rising prices suggest rates may stay higher for longer, with S&P Global noting the survey is consistent with a 5% annualized GDP pace.

Services Lead the Charge

The US private sector kicked into a higher gear in September, with the services industry spearheading an exceptionally strong expansion. The final S&P Global US Services PMI came in at 58.8, slightly above the 58.7 flash estimate and a sharp jump from August's 56.5. The Composite Output Index, which tracks both manufacturing and services, held steady at 58.4—its fastest pace since July 2021. Readings above 50 indicate growth.

Services firms reported one of the strongest output expansions in the survey's history, while manufacturers also improved markedly. New orders grew rapidly, primarily fueled by domestic demand. However, export orders remained a weak spot, especially in services, as unpredictable tariff policy weighed on international clients.

The surge in demand is straining capacity. Backlogs of work rose at the fastest rate since May 2022, and companies responded by adding staff at the quickest pace in more than four years. "The September PMI is consistent with roughly a 5% annualized GDP growth pace," S&P Global noted, though it cautioned that PMI-based estimates are directional.

Cost Pressures Intensify

While the growth picture is robust, the inflation implications are concerning. Input-cost inflation accelerated to its fastest since October 2022, driven notably by higher fuel and transportation costs. Wage pressures also contributed as firms competed for scarce workers. Businesses increasingly passed these costs on to customers through higher selling prices.

"The combination of fast output growth, supply bottlenecks, elevated energy and logistics costs, and rising selling prices is inflationary—especially in services, where price pressures tend to adjust more slowly," S&P Global said. The firm characterized the September signal as being in rate-hike territory.

The report lands shortly after the Federal Reserve raised its target range by 25 basis points to 3.75%–4.00% at its September meeting, citing elevated inflation. Fed projections pointed to a 4.1% median federal-funds rate at year-end, with most policymakers anticipating at least one more increase in 2026. Richmond Fed President Tom Barkin said the risks to inflation outweighed those to maximum employment, pointing to firming conditions and continued consumer strength.

Market and Policy Implications

For markets, the strong-growth/higher-cost mix is generally hawkish. It reduces the case for near-term policy easing and can lift expectations for higher interest rates and bond yields. Equities face a mixed picture: cyclically sensitive companies may benefit from strong activity, but higher rates and input costs can pressure long-duration growth stocks, highly leveraged firms, and housing-related activity.

Energy and logistics costs were a major driver of September's input inflation, and these can feed quickly into delivered goods, travel, freight, and service prices. Trade policy uncertainty also remains a drag on export orders, making domestic demand the key growth engine while raising risks for trade-exposed firms.

Internationally, strong US domestic demand can support global suppliers, but weak US export orders and tariff uncertainty complicate that benefit. Energy-market disruptions have global consequences, raising input and transport costs across countries and sectors.

Looking ahead, the most likely immediate effect is firmer expectations for growth and inflation rather than a clear soft-landing signal. If upcoming employment, consumer-spending, and inflation data corroborate the PMI, markets may price a greater probability of additional Fed tightening or a longer period of restrictive rates. Risks to watch include whether input-price inflation flows into official consumer-price measures, whether robust hiring continues, and whether oil and freight costs recede.

Historically, the 58.4 composite reading is notable because it is the strongest since July 2021, when the economy was also experiencing rapid post-pandemic demand growth alongside supply shortages and high inflation. The key difference now is that policy rates are already restrictive, making the economy's resilience more consequential for the Fed.