In July, the ISM Services PMI in the United States expanded for the 25th consecutive month! Business activity and new orders accelerated in growth, but the employment index returned to the contraction zone.

In July, the U.S. services sector continued to expand, with business activity and new orders accelerating significantly, but employment indicators fell back into contraction. Concurrently, input price pressures intensified, indicating that the overall services sector in the U.S. remains resilient, although uncertainties persist regarding labor hiring and inflation prospects. The Institute for Supply Management (ISM) announced on Wednesday that the ISM services PMI for July recorded 54.1%, a slight increase of 0.1 percentage points from June's 54.0%. This marks the 25th consecutive month in the expansion zone and is above the average value of 53.4% over the past 12 months. Generally, a reading above 50% indicates expansion in the services sector. The ISM stated that a PMI in the services sector sustained above 48.1% typically suggests that the overall U.S. economy continues to grow. According to historical correlations, a services PMI of 54.1% in July corresponds to an annualized GDP growth rate of about 1.9%, indicating that the overall U.S. economy has been in expansion for 74 consecutive months. From a sectoral perspective, demand and business activity in the services sector showed notable improvement. In July, the business activity index rose to 59.1%, significantly up by 3.7 percentage points from June's 55.4%, reaching the second-highest level since May 2024 and exceeding the average of 55.6% over the past 12 months. The new orders index climbed to 57.2%, an increase of 2.1 percentage points from June, remaining in the expansion territory for the 14th consecutive month, reflecting robust demand for business orders. Some surveyed companies reported that the new fiscal year budget has been implemented, major summer projects have been initiated, and there is related demand from the World Cup, driving increases in business activity and new orders. However, the employment market showed significant signs of weakening. The services employment index fell to 47.4% in July, down by 3.8 percentage points from June's 51.2%, reverting to the contraction zone after briefly expanding for one month and hitting the lowest level since March. The index has been below 50% for 12 out of the past 18 months, indicating that service sector companies remain cautious in hiring. Some companies reported that they are slightly reducing positions, with some related to the application of artificial intelligence (AI); other firms noted a decrease in domestic jobs while recruitment in lower-cost regions like India has increased. From an industry perspective, seven sectors reported employment growth in July, including utilities, construction, retail trade, transportation and warehousing, wholesale trade, information, and public administration. Conversely, eight sectors experienced employment declines, including mining, finance and insurance, healthcare and social assistance, real estate, educational services, and professional, scientific, and technical services. Price pressures have further intensified. The prices index rose to 70.3% in July, up 2.6 percentage points from June's 67.7%, marking the fourth time in the past five months to exceed 70%, and remaining above 60% for the 20th consecutive month. The average for the past 12 months has risen to 68.1%, the highest since April 2023. The prices for materials and services paid by service sector companies have risen for 110 consecutive months. In July, 17 sectors reported an increase in input prices, with no sectors reporting price declines. Projects associated with oil products, plastics, memory products, technical labor, software licenses and maintenance, transportation, transformers, and switchgear were identified as items with price increases. The ISM noted that the recent rise in oil costs continues to impact service sector prices. Companies in the transportation and warehousing sectors indicated that fuel and labor costs are the primary reasons for the ongoing price increases; public administration and construction-related firms expressed concern that the conflict in Iran could further drive up the costs of building materials and projects through oil prices. In terms of supply chains, the supplier delivery index was at 52.8%, down 1.6 percentage points from June, marking the 20th consecutive month above 50%, indicating a continued slowdown in supplier delivery speed. However, this index has fallen for the third consecutive month and reached the lowest level since December 2025, suggesting that supply chain delays are marginally easing. Some firms reported that small suppliers are facing financial pressures, leading to delivery delays and missed shipments; the delivery cycles for certain network devices and electrical conductors remain long. Retail businesses indicated that the delivery cycles for network access points and switches required for new store construction have reached 4 to 6 months, necessitating advances in placing large orders. The report shows that the number of shortage items decreased from nine in June to eight in July, but supply challenges persist for technical labor, memory components, electronic components, switchgear, wire and cable, and steel products. Some companies are ensuring supply by extending procurement windows and pre-purchasing materials with long delivery times. The inventory index rose to 51.4%, a slight increase of 0.2 percentage points from June, remaining in the expansion zone for the sixth consecutive month. Some companies reported that to ensure supply security, they have moderately increased inventories and pre-purchased materials needed for future projects with long delivery cycles. However, the inventory sentiment index stood at 52.5%, remaining in the "excess inventory" territory for the 39th consecutive month, indicating that some companies believe current inventory levels are still too high relative to actual business needs. The backlog index fell to 50.9%, a significant decrease of 4 percentage points from June, yet it continued to remain in expansion for the sixth consecutive month. This marks the longest period of backlog growth since a consecutive expansion of 26 months ending in February 2023. The new export orders index rose to 52.0%, an increase of 1.6 percentage points from June, sustaining above 50% for the sixth consecutive month. Some companies indicated that demand for subscription services and international orders has increased, with major export markets showing some resilience amid geopolitical and trade uncertainties. The import index rose from 49.4% in June to 51.8%, re-entering the expansion territory after three consecutive months of decline since March. Some firms noted that the launch of new products and advantages in international procurement costs have spurred imports, while others mentioned receiving key equipment like transformers from overseas. In terms of industry performance, 13 service sectors experienced growth in July, one less than in June, including retail trade, transportation and warehousing, wholesale trade, business management and support services, information, construction, accommodation and food services, public administration, utilities, educational services, mining, professional scientific and technical services, and finance and insurance. Four sectors experienced contraction, including agriculture, forestry, fishing and hunting, other services, healthcare and social assistance, and real estate and rental and leasing services. Feedback from surveyed companies indicated that the overall business environment for the U.S. services sector remains differentiated. The finance sector reported that business customer demand remains healthy, but companies remain cautious about the outlook for interest rates and inflation; wholesale trade companies mentioned that despite tightening wood supplies and challenges with freight and delivery capacity, business performance exceeded expectations and they remain optimistic for the remaining time in 2026. Meanwhile, construction businesses stated that even with increased discounting, sales are still declining, and various cost pressures continue to rise. Transportation and warehousing firms indicated that demand remains steady, but fuel and labor costs continue to drive up prices. Utilities noted strong demand for electrical equipment, leading to competition for production scheduling, with an increasing number of suppliers requiring purchasers to prepay progress payments or down payments. Steve Miller, chair of the ISM services survey committee, noted that tariffs and Middle Eastern conflicts were still raised by respondents, but the frequency has significantly decreased; the World Cup has once again been viewed as a factor driving increases in business activity and new orders. Overall, the U.S. services economy remains resilient, but concerns regarding mortgage rates, inflation levels, and the price impacts of recent increases in oil costs are currently significant challenges for businesses.