U.S. Services Sector Expanded in August: ISM® Services PMI® Rises to 55.4%

Summary

U.S. services activity expanded for the 26th consecutive month in August 2026, with the ISM® Services PMI® rising to 55.4%, up from July’s 54.1%. Business activity, new orders, inventories, exports, and imports all strengthened, while employment remained in contraction territory. Prices climbed to their highest level in nearly four years, signaling persistent cost pressure.

Services Activity Accelerates Across the Economy

The August reading of 55.4% reflects faster expansion across the services sector, supported by strong demand and rising business activity. Key highlights:

• Business Activity: 61.7% (+2.6 pts)
• New Orders: 60.9% (+3.7 pts)
• Employment: 47.8% (+0.4 pts, still contracting)
• Supplier Deliveries: 51.3% (slower deliveries)
• Prices: 72.6% (+2.3 pts, highest in nearly four years)
• Inventories: 56.7% (+5.3 pts)
• Backlog of Orders: 55.6% (+4.7 pts)

Demand is red‑hot, but hiring remains slow, a dynamic shaping the entire services landscape.

What’s Driving August’s Strong Performance

1. Business Activity Hits a Six‑Month High

The Business Activity Index surged to 61.7%, reflecting broad-based growth across industries. Respondents cited stronger customer demand, increased project activity, and higher throughput.

2. New Orders Reach Highest Level in Over Three Years

New orders climbed to 60.9%, marking the 15th straight month of expansion. Industries reported higher attendance, increased capital investment, and stronger demand for long‑lead items.

3. Prices Continue Their Upward March

The Prices Index hit 72.6%, its highest level since April 2023. This marks the 21st consecutive month above 60%, underscoring persistent inflationary pressure across labor, fuel, software licensing, and steel products.

The Hiring Puzzle: Strong Demand, Weak Employment

Despite booming activity, the Employment Index remained in contraction at 47.8%. ISM notes that companies are:

• Managing costs by limiting hiring
• Operating with lean staffing as long as customer satisfaction holds
• Facing persistent labor shortages in key roles

This marks the 13th contraction in the last 18 months, a pattern not seen since 2008–2010.

Supply Chain Signals: Slower Deliveries, Higher Inventories

• Supplier Deliveries: 51.3% — slower deliveries for the 21st straight month, typical in periods of rising demand.
• Inventories: 56.7% — strong restocking activity.
• Inventory Sentiment: 54.1% — inventories considered “too high” for the 40th consecutive month.
• Backlog of Orders: 55.6% — highest in six months, partly due to staffing constraints.

Exports and Imports Strengthen

Both export and import activity expanded:

• New Export Orders: 56.3% (+4.3 pts)
• Imports: 56.3% (+4.5 pts)

This reflects rising global demand and stronger domestic consumption.

What August’s Services PMI® Means for the U.S. Economy

1. Strong Q3 Economic Momentum
   The August PMI® corresponds to a 2.3‑point increase in annualized GDP, signaling solid economic performance.

2. Persistent Inflation Pressure
   Prices remain elevated across multiple categories, a challenge for cost management.

3. Demand Outpacing Labor Capacity
   Companies are stretching existing staff to meet rising demand.

4. Supply Chains Improving Slowly
   Slower deliveries and rising inventories indicate gradual normalization.

5. Services Sector Continues to Anchor U.S. Growth
   With 26 months of expansion, services remain the backbone of the U.S. economy.

Key Takeaways

• August ISM® Services PMI®: 55.4%, 26th month of expansion.
• Business activity and new orders hit multi‑year highs.
• Employment remains in contraction despite strong demand.
• Prices surged to their highest level in nearly four years.
• Inventories, exports, imports, and backlogs all strengthened.
• The report signals strong economic momentum heading into Q4.

FAQ

Is the services sector still expanding?
Yes, August marked the 26th consecutive month of expansion.

Why is hiring still weak?
Companies are managing costs amid rising prices and relying on lean staffing.

What drove the PMI® increase?
Stronger business activity, new orders, and inventory growth.

Are prices still rising?
Yes, the Prices Index hit 72.6%, its highest level since 2023.