US August ISM Services PMI Expands Beyond Expectations, Price Index Hits Four-Year High

In August, US service industries achieved their largest expansion in six months, driven by strong demand and a rebound in business activity.

According to data released on Thursday, the Institute for Supply Management (ISM) Services PMI rose 1.3 points to 55.4, reaching its highest level since February this year. This exceeded the market expectation of 54.3. A reading above 50 indicates the industry is in an expansion phase.

New orders increased at the fastest pace since early 2023; meanwhile, the business activity index also delivered its strongest performance since 2022. Order backlogs have grown for the seventh consecutive month.

In August, a total of 12 service sectors reported growth, including mining, real estate, and accommodation and food services. Five other sectors reported contraction.

The prosperity of US service industries benefits from resilient consumer spending, a stable labor market, and healthy business investments. At the same time, they must also cope with supply chain disruptions, tariffs, and cost increases across the economy.

The ISM Services Price Paid Index climbed to 72.6 in August, marking the highest level since mid-2022.

Although the inflation rate is far below 2022 levels, since the outbreak of the Iran war in February, both consumer and producer price indices have risen and remained elevated, creating pressure for many businesses.

Steve Miller, Chairman of the ISM Services Business Survey Committee, stated in a release: “In August, prices for petroleum-related products, diesel, and gasoline were again reported to be rising. Additionally, graphics processing units (GPU) and steel were listed as goods in short supply.”

High prices may be one reason businesses are downsizing staff. In the past six months, the ISM employment index has shown signs of contraction in five months.

Supplier delivery times remain in the expansion range, but the index fell to its lowest level in nearly a year, possibly indicating supply chain bottlenecks are slowly easing.

Sector feedback:

Accommodation and Food Services: “The overall business environment is improving. The current challenge is how to respond to dynamic government policy changes—tariffs and Middle East conflicts have created many cost input obstacles for our suppliers and ourselves.”

Construction: “The bond market has pushed the 30-year mortgage rate up to 6.67%, reducing home affordability and causing potential buyers to wait and see… Rate buydowns and discounts have become the norm, rather than tools to attract customer traffic.”

Educational Services: “The Iran conflict and oil supply tightening have driven up our fuel costs. However, locally, the economy continues to perform well and the housing market is stable. As long as the local economy remains strong, we expect enrollment to stay steady.”

Healthcare and Social Assistance: “We have received some notifications about tariff refunds. Currently, material delivery delays have decreased.”

Professional, Scientific, and Technical Services: “Section 301 tariffs combined with newer forced labor-related tariffs keep landed costs high, forcing us to continuously recalculate total cost of ownership (TCO). We are actively seeking dual sourcing and evaluating nearshore outsourcing options, but for certain specialty materials and components, qualified capacity, lead times, and consistent quality remain limited. As a result, we need to maintain higher inventory buffers, lengthen planning cycles, and face profit margin compression that can only be partially passed on.”

Retail: “The shortage of memory is worsening. For devices requiring memory cards, current inventories are low and prices are high.”