The US service economy remained in expansion during July as new orders advanced and overall business activity strengthened, according to data released by the Institute for Supply Management on Wednesday.
The ISM services index increased by 0.1 point to 54.1 last month. Readings above 50 indicate sector expansion.
New orders expanded at an accelerated pace and business activity climbed to its strongest level in five months, a combination that points to solid consumer demand for services in July. At the same time, a measure tracking prices paid by service providers surged to 70.3 for the month. The rise in input costs followed the breakdown of a temporary agreement between the US and Iran and the associated increases in oil and gasoline prices.
Despite gains in demand and activity, the employment component weakened. The employment gauge recorded the steepest drop in workforce numbers since March. The report notes that some firms may be delaying new hires as elevated costs squeeze profit margins and weigh on consumer spending.
Industry breadth remained positive overall: thirteen service industries reported growth in July, including retail trade, transportation and warehousing, and construction. Four sectors contracted over the period.
Order backlogs showed only minimal growth in July, while both import and export measures rose to their highest readings since April.
The government s monthly employment report for July is due on Friday. Economists forecast that nonfarm payrolls increased by roughly 80,000 positions.
Context and implications
The slight uptick in the ISM services index, paired with faster new orders and stronger business activity, suggests demand resilience in the service economy. However, the sharp increase in the prices-paid measure reflects higher input-cost pressure linked to energy price movements. The simultaneous decline in the employment gauge indicates that staffing gains may be restrained amid cost pressures.
Data limitations
The ISM release provides a snapshot of July activity and sentiment in the service sector. It does not include the full range of firm-level details that could explain the depth of hiring decisions or the sectoral distribution of price increases beyond the industries explicitly noted.