U.S. Service Sector Holds Firm, But Growth Signals Blur in November

03 December 2025

In November 2025, the backbone of the U.S. economy, the services sector managed to hold its ground even as signs emerged of a growing slowdown, revealing a mixed economic picture for businesses and policymakers alike. According to the Institute for Supply Management (ISM), the non-manufacturing Purchasing Managers’ Index (PMI) nudged up slightly to 52.6 from 52.4 in October. That modest lift beat many analysts’ expectations and confirmed that the services sector remains in expansion territory yet the details underneath suggest that stability may be fragile.

On paper the headline PMI suggests life in the service economy is humming along. The index staying above 50 means activity continues. Services still account for more than two-thirds of U.S. economic activity, and November’s number implies that, overall, the sector remained relatively steady as the fourth quarter began.

Yet beneath that surface calm lurked signs of softness. The measure of new orders often a leading signal of future activity dropped notably to 52.9 in November, down from 56.2 in the prior month. While this still technically indicates expansion, the sharp decline points to a slowdown in demand. Backlog orders likewise remained weak, though there was a slight easing in the pace of decline. That suggests fewer orders are coming in, while previously logged orders are not piling up.

Cost pressures are still with us. The “prices paid” index which tracks what service-sector businesses pay for inputs like materials, supplies and overhead fell from 70.0 to 65.4. That marks a softening compared with prior months but still signals elevated costs overall. With inflation lingering above the level targeted by the Federal Reserve, service-providers likely remain squeezed between high input costs and more cautious customers.

Jobs tell another nuanced story. The employment gauge ticked up slightly to 48.9 from 48.2 an improvement, but nonetheless one that reflects contraction, and a sixth straight month of employment decline in the service sector. That suggests many service businesses remain cautious about hiring, even as operations continue.

Economists point to several overlapping pressures. Tariff-driven import costs still weigh heavily on firms costs that have both raised input prices and strained consumer spending. Many companies also say they are contending with shifting labor dynamics, including reluctance to hire as immigration enforcement tightens and the adoption of automated or AI-powered systems reshapes workforce needs.

In addition, consumer behavior appears divided. Higher-income households remain the main drivers of demand, affording services like travel, leisure, and professional services. But for lower-income Americans, the pinch of price inflation and uncertainty about jobs has dampened spending. That divergence contributes to what analysts now call a “K-shaped economy,” where some segments continue to spend and grow while others slow down sharply.

Against that backdrop, the upcoming meeting of the Federal Reserve will draw keen attention. With rate-setting members divided some calling for further rate cuts to stimulate demand, others cautious about loosening policy until inflation is firmly under control, the mixed signals from the service sector may influence the direction of monetary policy.

Meanwhile small-scale businesses often a vital source of employment in retail, hospitality, and services appear especially vulnerable. Though the overall sector shows signs of resilience, weak hiring, rising costs, and sluggish new orders could translate into constrained growth or even layoffs in those businesses.

For households and consumers, the slowdown means recalibration: demand for services may soften, deals and pricing may become more competitive, and businesses may tighten their offerings or delay expansion.

The November ISM data paints a picture of a services economy standing at a crossroads. It has avoided outright contraction, for now but the downward shift in orders, soft hiring, and stubborn costs suggest that the sector is navigating a delicate balance. The coming months will test whether that balance holds or begins to tilt into a broader slowdown.