The largest part of the U.S. economy grew at a rapid pace just ahead of the holiday shopping season, but business leaders were not in a festive mood due to stubborn inflation. A closely followed survey of service companies such as banks, retailers and restaurants registered 54.5% in October versus 54.9% in the prior month, the Institute for Supply Management said. Any number over 50 signals expansion.
Service-oriented companies employ most Americans and represent a much bigger share of the economy than manufacturers. Yet a boom in artificial intelligence that has benefited the industrial side of the economy appears to have spread to the service sector as well. What 7% mortgage rates mean for the housing market Play video: What 7% mortgage rates mean for the housing market The biggest impediment to businesses and the broader economy is persistent inflation stemming from the Trump administration’s tariffs and high oil prices tied to the Iran war.
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Inflation was one of the biggest factors in the U.S. elections, as frustrated voters delivered a historic win for Democrats and left Republicans in political disarray. The ISM survey is one of the earliest indicators each month of the health of the economy. A similar poll of manufacturers, released a few days ago, was also quite strong. **Key details:** New orders — a sign of future sales — retreated from a three-and-a-half-year high a few months ago, but they were still quite robust.
Businesses have gotten enough new orders to start hiring more people. A gauge of employment rose for the second month in a row, although not enough to signal a big upturn in a sluggish U.S. labor market. Yet the rising cost of supplies and increasing difficulty in obtaining them were giving businesses plenty of headaches.
A measure of how much companies pay for supplies topped 70% for the fourth month in a row. When inflation is low, the index readings tend to range in the 50s and low 60s in percentage terms. **Big picture:** Most businesses are growing and seeing increased demand in a good sign for the economy, but it’s also a challenging time to manage costs and keep customers happy. As a result, companies are keeping a tight rein on hiring as part of an effort to keep their own costs down. **Market reaction:** The Dow Jones Industrial Average and S&P 500 rose in Wednesday trading after Democrats made huge gains in the U.S. elections, capturing both the House and Senate.
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